High-income taxpayers have felt the brunt of tax changes over the past year, as new taxes on upper-bracket taxpayers could cost a lot of extra money this April. Yet some believe that yet another benefit currently open to high-income taxpayers could disappear: the ability to use a backdoor Roth IRA.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the backdoor Roth and why it could go away. Dan explains how the backdoor Roth works, with high-income taxpayers using a nondeductible traditional IRA and then converting it to a Roth if they have no other traditional IRAs outstanding. But Dan points to the hostility toward high-income taxpayers both in past law changes and in the administration's latest budget proposal, which would put caps on retirement assets, change rules on required minimum distributions, and other changes. Dan concludes that "harmonizing" income limits on conversions and contributions to Roth IRAs wouldn't be a huge stretch, and he recommends keeping an eye on lawmakers to see if they make any attempts to move in that direction.