Roth IRA Contribution Loophole

[Guest redlenses]

Does the loophole still exist where you can get around Roth IRA contribution limits by contributing nondeductible amounts to a traditional ira for previous tax year then immediately convert it into a Roth IRA?

e.g. 2005 MAGI is 98K meaning you are limited to contributing a maximum of $3200 to your 2005 Roth IRA. After Jan 1, 2006 and before April 15th, 2006 you make an $800 nondeductible Traditional IRA contribution, the next day you convert your new Traditional IRA to a ROTH IRA which is a tax-free conversion since there are no gains (your MAGI for 2006 will be less than 100K).

You just effectively contributed the full $4000 to your ROTH IRA. This trick works as long as you MAGI stays under $100K

Is there anything to prevent this from happening?

(This technique was published by Roy Lewis on the Motley Fool back in 2001)

[Appleby]

This is assuming you have no other Traditional, SEP or SIMPLE IRA right?...since if you do, the $800 would be prorated to include after-tax and pre-tax amounts, based on an aggregation of all of your SEP, SIMPLE and Traditional IRA balances….i.e. all your traditional, SEP and SIMPLE IRA balances are treated as one IRA for purposes of determining whether the $800 is completely tax-free