Doctors should note that President Obama’s 2016 budget proposes to eliminate these “back door” Roth IRA contributions, although Congressional passage is unlikely this year.ĭoctors who follow our recommended strategies for Roth IRA conversions can achieve federal income tax savings of over $500,000 as shown on the next page. This conversion is tax-free if handled as discussed below.
Under this approach, the doctor and spouse make the maximum annual contribution ($5,500 per spouse if under age 50 $6,500 per spouse if age 50 or older) into a non-deductible IRA and thereafter convert those contributions into a Roth IRA. Higher income doctors can make indirect, or “back door” contributions to a Roth IRA, which we first recommended back in 2010. Doctors can make contributions directly into a Roth IRA if their Modified Adjusted Gross Income (MAGI) is below $116,000 in 2015 and $117,000 in 2016 (single), or $183,000 in 2015 and $184,000 in 2016 (married). Virtually every doctor and spouse can fund a Roth IRA, either directly or indirectly. Accordingly, the doctor need not tap into his Roth IRA during his lifetime, but can pass the balance down to his children, who can stretch out distributions over their lifetimes, allowing tax-free compounding to continue for decades. No distributions from Roth IRAs are required beginning at age 70½ as with traditional IRAs. In addition to these tremendous income and payroll tax benefits, there are also estate tax advantages. interest, dividends, capital gains, rental income, etc.). Moreover, neither Roth IRA earnings nor withdrawals are subject to the 3.8% Obamacare payroll tax on personal investment income (i.e.
Also, amounts contributed to Roth IRAs (principal) can be withdrawn tax-free at any time. Roth IRA earnings can be withdrawn tax-free any time after the later of age 59½ and at least five years after opening the Roth IRA. Free 30-Day Trial Membership Already a member? Log In This is a Free Article Join Today for Hundreds of Resources Like This
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