Backdoor Roths done right
It’s that fun time of year where 2024 isn’t really done from a tax planning perspective, but most people are ready to move forward with 2025. And then you have CPAs who won’t really acknowledge it’s 2025 until sometime in May when they’ve recovered from the “joys” of the tax filing season.
Over the next several weeks, there will be endless headlines, social media posts, and email subject lines (yes, like this one) reminding everyone that there is still time to get those last-minute contributions in before they file their tax returns. Some of those recommendations can feel simple, like topping off an HSA; others can feel daunting, like navigating a backdoor Roth contribution. I’m here to remind you that complexity does not have to be a roadblock if you have the right resources.
For taxpayers over the income limits to make conventional Roth contributions (make sure you have your RTS Tax Guide printed on your desk so those numbers are always at your fingertips), the backdoor Roth contribution can be a great opportunity to get even more into qualified accounts, in this case, ones that will grow tax-free! Backdoor Roth contributions take a few extra steps, but with a solid plan, they don’t have to be scary. I’ve had to answer questions on the topic to the IRS multiple times, but they have never disallowed a properly executed backdoor Roth, so you just need the right plan.
Other than the income eligibility range being adjusted for inflation, there haven’t been any changes to the process for 2025, but now is a great time to review your process for backdoor Roth contributions and make sure there aren’t areas for improvement. This is a great time to have your team review the last few backdoor Roth contributions you have executed and look for ways to add more value, communicate more clearly, create a smoother experience for the client, simplify how all the details are reported, and identify steps that can be delegated or automated.
This can be a great area to learn from your own experience or from a peer group, but wherever you are learning from, it is definitely an area that warrants regular review and refreshing. It’s also an area where we get a lot of questions, which means we’ve created resources to help.
First, in the form of a backdoor Roth contribution worksheet that walks you through the steps and considerations to help a client get a backdoor Roth contribution done correctly (including evaluating whether the strategy makes sense to begin with). This guide has helped newer advisors learn the strategy better and helped experienced advisors streamline their process. It’s a great resource to have access to.
And for the advisors looking to go deeper we created an entire masterclass complete with examples and guest appearances from financial advisors who do this work in the trenches with clients just like you. This course is CE-eligible as a bonus but, more importantly, gives you the knowledge and tactics to deliver massive value on a topic that can be a huge win if done correctly and a huge headache for people who take it too casually.
Happy Tax Planning!
