Congress wants to kill the Backdoor Roth

Transferring after-tax IRA contributions to a Roth IRA (the dreaded “Backdoor Roth Maneuver”) is under severe scrutiny by congress as a tax loophole for the rich.   This move is popular for people who earn too much money to directly contribute to a Roth IRA ($75,000 filing single – $124,000 married filing jointly) but want the benefits that the Roth vehicle affords – tax free investment growth, tax free withdrawals and no required minimum distributions.


In 1999, Peter Thiel took his Roth IRA and bought 1.7 million shares of PayPal for $0.001 per share.  He then parlayed the subsequent gains into a $5 billion tax-free nest egg.  Thanks to Peter’s good fortune and access to the pre-IPO market, congress wants to clamp down on rich people taking advantage of Roth IRA benefits.


There is a better way to use after tax savings to grow wealth while minimizing taxes.  Purchase a variable universal life insurance policy and contribute $5,600 per month.  Doing this will amass $1 million in value over 10 years.  You have the option to remove your premium contributions of $675,000 with no tax consequences and have a policy value over $400,000 that you can apply to your estate or a self-funding, long-term care policy.  Or you can leave the balance and let it grow until you want to remove the cost basis tax-free at any time.


While congress may change the IRA rules, it is highly unlikely they will change the tax treatment of insurance policies.  Big financial firms have too much clout in D.C. to let that happen.


The intelligent use of insurance is one of many techniques you can use to build your personal wealth.  Ask your insurance agent about utilizing a variable universal life insurance policy as part of your tax reduction plan.  If he doesn’t know what you’re talking about – call us at Strong Back.  We will be happy to explain it to them.