No, a true Backdoor Roth does not benefit. The IL loophole requires having taxable 1099-R income. That income is taxable for federal purposes but not state purposes.Lstone - Now I'm even more confused haha, sorry.
Put that way, there might be an amending opportunity. If you were doing the backdoor Roth as a non-deductible tIRA contribution followed by a non-taxable Roth conversion, then amending to make it a deductible tIRA contribution followed by a taxable Roth conversion would reduce IL taxes. It would have no impact on federal taxes (but you’d still need to amend federal to support the state amendment) but then you’d have the IL IRA deduction followed by no IL income on the conversion.
If I do the Backdoor Roth IRA process - Contribute to a non-deductible Traditional IRA (because I am over the limit) and then convert it to a Roth IRA a few days later, can I use this loophole or no?
With a true backdoor, there is no deduction for the tIRA contribution and no income on the conversion. But if you qualify for a deductible tIRA contribution, one can make a deductible tIRA contribution followed by a taxable conversion (assuming no pro-rating). So if one does this with $7,000, the contribution generates a $7,000 both federal and state deduction and the conversion generates $7,000 in federal income but $0 state income. Fed nets to $0 but you're still left with the $7,000 state deduction.
Statistics: Posted by lstone19 — Mon Dec 16, 2024 11:08 am — Replies 15 — Views 720