Self-Directed IRAs and the Backdoor Roth: Today’s Slott Report Mailbag

Thursday, July 14, 2022

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

Is there a required minimum distribution (RMD) on a self-directed IRA?

Answer:

A “self-directed IRA” is nothing more than an IRA that invests in unconventional items that not all custodians will handle – like maybe crypto currency, real estate, or a hard-to-value assets. Otherwise, self-directed IRAs follow the same rules as every other IRA. As such, yes, self-directed IRAs do have RMDs. So, if you own a commercial property or some other illiquid asset in your self-directed IRA, be proactive and ensure you have some way to take the RMD.

Question:

Ed,

I have enjoyed for years your seminars and newsletter. Last year Congress proposed to end the “Backdoor” Roth strategy. My question on this strategy for this year is, do we implement this with our clients or not? Are you aware of any tax proposals that target eliminating the Backdoor Roth? Or does it look like a safe strategy to employ again in 2022?

Thanks,

Thomas

Answer:

Thomas,

The Backdoor Roth strategy for those who earn too much to contribute to a Roth IRA directly is alive and well in 2022. (The strategy involves contributing non-deductible dollars to a traditional IRA and then converting those dollars to a Roth.) While the Build Back Better bill specifically targeted the strategy, the proposed legislation never made it to law. Should any similar legislation be passed in the second half of this year, we don’t think it would be retroactive for 2022. While Congress did tip its hand and show it is considering elimination of the Backdoor Roth, it is still 100% available for 2022.

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