High income earners, rejoice! The IRS announces that I was right... I'll tell you more right now in episode #303 of America's largest, fastest-growing show for self-directed investors...

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Hello, Self-Directed Investor Nation! This is Self-Directed Investor Talk, the SHOW OF RECORD for savvy, self-directed investors like you, where each day, I help you to find, understand and profit from exceptional investment opportunities and strategies.

Today, we focus on the STRATEGY side of the equation, but first...

I'd like to extend a huge thank-you again to you folks for continuing to totally BLOW UP our download numbers for this show in the last couple of days since we've gone back on the air... you people are amazing and I'm so grateful! In particular, I'd like to thank all of you who were so kind as to leave me some wonderful 5-star reviews over on iTunes even since we took our hiatus from broadcasting last year. One such kind 5-star review on iTunes came from NateKG who said "I am a full-time day trader getting into the markets after a long career of driving trucks. After searching for some advice on self-directed 401k's, I came across SDI. "WOW", I thought after the first two episodes. This guy's got some valuable information. Everything I was looking for! I highly recommend you listen to Bryan's show all the way from the start. You will be glad (and wealthier) you did!"

Thank you, NateKG... I appreciate that so very much! And if you, my dear listener, feel so inclined, I'd be ever so grateful if you'd consider following in the wise ways of NateKG and stopping by iTunes to give us a rating and review... I'd really really appreciate it!

Ok, onward...

So, my friends... chances are good you're familiar with this thing known as the Roth IRA. It's the newer version of the IRA that allows you to make deposits on an after-tax basis, but all withdrawals of profit you make during retirement are totally TAX-FREE! It's really amazing, to be frank... it really does totally eliminate taxes on your profits.

BUT... there's a downside to it, and that is that there are income limits for making a contribution. Once your income goes above a certain level... not terribly high, starting around $120,000, then your ability to contribute to a Roth is limited and is soon wholly eliminated based on your income.

Well... that's a problem, because the tax advantages of the Roth IRA are just astounding. So somewhere along the way, somebody hatched an idea called the "Backdoor Roth IRA" which would give high-income earners an indirect, back-door kind of way to put money in a Roth IRA. The idea is actually pretty simple:

Instead of contributing to a Roth IRA, what you could do instead was to contribute to a Traditional IRA – which does NOT prevent high income earners from making contributions, as long as they don't take a tax deduction for it... and then just convert that Traditional IRA to a Roth IRA!

The net effect is that you end up with exactly the same thing: A Roth IRA with the amount of money that you would have otherwise contributed... all the same tax benefits and all the same everything applies thereafter, just as if you'd contributed the money directly to a Roth IRA in the first place.

Pretty cool, right? 

Yeah, definitely... now this strategy isn't new. In fact, I told you about it on this very show in January of 2017. You can find that episode linked on today's show page, which is SDITalk.com/303. But the sticking point, which I mentioned in that episode, is that a lot of people have been concerned that the IRS would see this as some sort of a skirting of the rules, and take action against anybody using this strategy.

But there's a problem. That problem is called the "Step Transaction Doctrine", which is a fancy way of saying that if you use a combination of rules as a series of steps to circumvent some other rule, then you're breaking the original rule. The point here being, of course, that a lot of folks out there in the tax and legal community were pulling out their hair over fears that the IRS would drop the hammer and say that using the Backdoor Roth IRA was a violation of the Step Transaction Doctrine and would cause tax problems for anyone who used it.

I never believed that. Here's what I told you about that back in January of last year about that very thing:

My gut sense here as a non-lawyer who is wholly unqualified to give legal advice is that it's wildly improbable that the IRS would pursue that path.

So I'm on record telling you that that particular hubub was probably more of a hysteria than a legitimate issue, and well folks, time has proven me right, yet again, as the feds have issued a clarification in the form of a footnote in a congressional conference committee report says, “Although an individual with AGI exceeding certain limits is not permitted to contribute directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to a Roth IRA.”

Well, folks... it doesn't get a lot more clear than that. Very black and white. But then they went a step further, when Donald Kieffer Jr., a tax law specialist with the IRS’s Tax-Exempt and Government Entities Division made this comment on July 10th Tax Talk Today webcast. He said: “I think the IRS’s only caution would be whenever we see words like ‘back door’ or ‘workaround’ or other step transactions that are putatively enabling a way to get around limits - especially statutory contribution limits - you generally find the IRS is not happy and prepared to challenge those,” Kieffer said. “But in this one that we’re talking about, it’s allowed under the law.”

That's pretty blatant, I think you'll agree... and it's great news. So all you high income earners... rejoice! It looks like you can use the backdoor Roth IRA to your heart's content.

Ok folks, that's all I've got for you today. Remember to check out our sponsor, the SDI Academy, if you'd like to learn the ACTUAL TRUTH of what your self-directed IRA and 401(k) are really all about... and how to use them without causing yourself real heartache. You can learn more over at SDITalk.com/academy.

My friends... I'll be back with you tomorrow, same bat-time, same bat-channel... and in the mean time, invest wisely today and live well forever!

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