We know that starting this year income limits on converting a Traditional IRA into a Roth IRA have been lifted. This means that while income limits exist on contributing to the Roth IRA, a loophole is now available -- we can simply put post-tax dollars into the Traditional IRA and immediately convert them to the Roth IRA, which would not have tax consequences as it would be done without any delay, so there would be no gains to be taxed.
My question is this... must we go through the motions of setting up a Traditional IRA, then go through the immediate conversion process, or can we just contribute directly into the Roth IRA, implicitly taking advantage of the loophole?
I asked one of my brokerages, and they said that we would be allowed to contribute directly without having to go through the motions. But, everything else I'm reading does not seem to agree. Maybe I need to call the IRS help line.
Anyone know the answer?
Edit: After quite a wait, I was able to speak with an IRA-specialist at the IRS. His answer conflicts with what the brokerage representative had told me. His short answer is: Yes, you need to go through the motions of establishing a Traditional Non-Deductible IRA, funding it, and then converting it over to the Roth IRA. If you make a direct contribution to the Roth IRA (assuming you are ineligible due to the AGI limit), you will be notified at some point of this error and forced to take that money out, which can have additional tax consequences and penalties.
Really inefficient if you ask me. So, now I probably need to re-contact my brokerage and inform them of their error, and start the process of creating and funding the Traditional just so I can pump money into my Roth. Ugh.