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Beware of These Backdoor Roth Dangers: Advisors' Advice

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Backdoor Roth IRAs seem to be in the spotlight as much as some Hollywood celebrities these days, especially with the threat that Congress will do away with them. But until that happens, this approach remains a key financial instrument in advisors’ retirement toolkit.

Recently, Christine Benz -— Morningstar’s director of personal finance -— revisited the topic and looked at key mistakes to avoid with these products. Her list included:

  1. Not looking at the pro-rata rule,
  2. Not taking advantage of the escape hatch,
  3. Investing the traditional IRA in long-term assets and letting it sit,
  4. Not converting serially,
  5. Holding off on the conversion because of legislative risk.

In a recent interview with ThinkAdvisor, though, retirement and tax expert Ed Slott of Ed Slott & Co. acknowledged there were disagreements on whether or not to pursue a backoor Roth while it was being debated in Congress.

Still, Slott advises clients to wait to contribute to backdoor Roths “until we know if this Build Back Better [economic bill], or some version of it, will ever pass. If anything passes, that provision I believe will be included because there’s no big opposing constituency for it. There’s nobody picketing at the Capitol: ‘Save the Backdoor Roth!’”

With backdoor Roths in mind, ThinkAdvisor decided to ask advisors about the largest mistake they’ve seen in implementing this approach and how these problems can be corrected.

See the gallery above for their responses.

(Image: Shutterstock)