Tax Intel

Timely tax tips for you and your business

Dave Erb, CPA

Tax Intel


Don’t stagnate, convert!


Can’t do a Roth IRA due to taxable income that limits the amount (if any), you can contribute? Do you need to balance the volume of your retirement money in tax-deferred accounts? Time to consider a Roth IRA conversion even if your taxable income would appear to make this impossible. Keep this in mind:

  1. If you have reached annual income limitations, you can still make a “back-door” Roth IRA conversion by making nondeductible contributions to a traditional IRA and then converting those amounts to a Roth IRA. But be careful if you have other pre-tax traditional IRA accounts, as there are special pro-rating rules to consider.
  2. If many or all of your eggs are in a tax-deferred basket (e.g., traditional IRA or qualified retirement plan) and outside taxable investments, consider taking some of those tax-deferred assets and converting them to a tax-free Roth to better balance your retirement funds from a tax perspective. Converting under the new, lower individual tax rates may make great sense and a back-door conversion is generally income tax neutral.

Nothing says “love” like a Roth IRA


Once a child is old enough to create earned income, parents with discretionary income should consider setting-up and contributing to a child’s Roth IRA annually. Set up the account in the child’s name and then gift a contribution to the account each year for as long as you want to. Since the money belongs to the child, parents can use their discretion about how and when to communicate that the IRA exists.

This approach can potentially produce a tax-free savings account for your child that can benefit them at many points in life (not just at retirement). In essence, this is love, compounded!

65 Days to Make Your Day and Lower Taxes: The 65 Day Trust Distribution Deadline

Lost in the shuffle of the new tax bill passing and becoming law may be an easily overlooked boon for trustees. Known as the 65 Day Rule, the Section 663(b) election, allows a trustee to make a distribution during the first 65 days of the New Year, and have it count in the previous year. This can result in reduced income taxes by distributing some income to one or more beneficiaries who may be in a lower tax bracket.

For trusts that operate on a fiscal year basis, the 65 Day Rule applies to the first 65 days of the new fiscal year.

For more tips and thoughts on lowering your tax burden, contact us.