Also, not everyone qualifies for the back-door Roth. You still have to be eligible to make a contribution to a traditional IRA, which is the first step in the back-door Roth process. Qualifying for a traditional IRA contribution means having earned income (except for a non-working spouse if filing a joint return with a spouse having the earned income) and not being over age 70½, since traditional IRA contributions cannot be made for the year one turns age 70½ or later years. In addition, keep in mind that the pro-rata rule applies, which means that part or all of the back-door Roth conversion might be taxable if there are other traditional IRA funds, including SEP and SIMPLE IRA funds. The once-per-year 60-day IRA rollover rule does not apply to Roth IRA conversions.
Ed Slott, CPA, is a recognized retirement tax expert and author of many retirement focused books. For more information on Ed Slott, Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, please visit www.IRAhelp.com. Mr. Slott will be a keynote speaker at Financial Advisor's Inside Retirement conference in Las Vegas on September 27.