“YMYW Gents – Steven here from steaming hot Texas. Love the show and I’ve learned a lot from you lately. I have the good fortune of being ineligible to make Roth IRA contributions because my income exceeds the limit. I’ve been wanting to pump more money into my Roth IRA account and of course the backdoor Roth contribution strategy has been on my mind. But there’s one problem – I have a sizable amount of pre-tax dollars already sitting in a Traditional IRA account from a previous employer’s 401k plan, and I don’t want to deal with the hassle of navigating the pro rata rule and subsequently having a portion of my backdoor Roth contribution be taxable. I’m curious if it would be possible to roll over the entire balance of my Traditional IRA account into my current employer’s 401k account, therefore bringing my portfolio to a zero balance of any pre-tax IRA dollars and paving the way for an easy backdoor Roth contribution. From reading my employer’s 401k plan document, it looks like the plan itself may allow such a rollover contribution from an IRA. Curious to hear your flippant thoughts and ideas on this. What are some pros and cons and what should I be thinking about while pondering this strategy? Thank you! – Steven”

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CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period….(read more)

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In a recent episode of the Your Money, Your Wealth® podcast, hosts Joe Anderson, CFP® and Big Al Clopine, CPA discussed the potential for a backdoor Roth contribution to become easier with proposed changes to retirement plan contribution limits.

Currently, individuals with high incomes are barred from contributing directly to a Roth IRA, but they can still make a non-deductible contribution to a traditional IRA and then convert that money into a Roth IRA. However, this process can be complicated and involve potential tax implications.

But with the proposed increase to the age for Required Minimum Distributions (RMDs) from retirement accounts like 401(k)s and traditional IRAs from 70.5 to 72, Anderson and Clopine believe this could pave the way for an easier backdoor Roth contribution.

The hosts explain that with RMDs pushed out to age 72, individuals have an extra year and a half to make non-deductible contributions to a traditional IRA and allow that money to grow tax-deferred before converting it into a Roth IRA. This could help mitigate the tax implications of the conversion and make the process smoother for those looking to take advantage of the backdoor Roth option.

However, the hosts caution listeners to stay vigilant and monitor any potential changes to these proposed rules before making any financial decisions. It’s important to consult with a financial advisor or tax professional before making any moves that could impact your financial plan.

In the end, while the proposed changes to RMDs may make a backdoor Roth contribution easier, it’s important to weigh the potential benefits against any potential tax implications and consider your own financial goals and plans before making any decisions.