You don’t need a ninja suit and a broom to sneak through this clean back door and “steal” an extra $10k. Many of my clients see the income limit for contributing to a Roth IRA ($150k/year single; $228k/year married) and give up on this wholly beneficial retirement account. This year, the contribution limit is $6,500 for an individual. Since a Roth IRA grows tax free and is 100% yours, it is an account everyone should take advantage of. Unfortunately the income limits leave many to believe it is not an option. I am here to show you exactly how to get in that back door, cleanly. In order for this to work, you must not have money in any other IRA accounts: traditional, rollover, SEP or SIMPLE. This does not include other types of employer accounts like 401(k), 403(b), etc. Open a traditional IRA account and contribute $6,500 for 2023 (if under age 50 - $7,500 if older) Wait for a few weeks/months and open a Roth IRA and transfer the money from the traditional to the Roth account. Then invest your cash into a low cost index fund and get excited about your extra $10k of tax-savings. That’s it. Clean and simple. So what are you waiting for?...(read more)
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A "Clean Back Door Roth IRA" is a strategy that allows high-income earners to contribute to a Roth IRA, even if their income exceeds the limits for direct Roth IRA contributions. With a traditional IRA, contributions may be tax-deductible and taxes are instead paid upon withdrawal in retirement. In contrast, with a Roth IRA, contributions are taxed upfront, but withdrawals in retirement are tax-free. Individuals with high incomes may not be eligible for direct Roth IRA contributions, as the limit for 2020 is $139,000 for single filers and $206,000 for married filers. However, there is a loophole that allows these individuals to contribute to a Roth IRA through a "Back Door" option. The first step is to make a non-deductible contribution to a traditional IRA, which does not have any income limits for contributions. The contribution is considered non-deductible if it is above the individual's income limit for tax-deductible contributions to a traditional IRA. Next, the individual can convert the traditional IRA to a Roth IRA. This conversion is tax-free since the individual has already paid taxes on the non-deductible contribution. The converted amount is added to the individual's taxable income for the year of conversion, but it can be spread out over two years. However, there is a potential pitfall to the backdoor Roth IRA strategy known as the "Pro-rata Rule." This rule considers all traditional IRAs an individual has when calculating the tax on a conversion. Therefore, if an individual has pre-tax dollars in a traditional IRA, those conversions will trigger a higher tax bill. To avoid the Pro-rata Rule, an individual can roll over the pre-tax dollars in their traditional IRA to an employer-sponsored 401(k) if their plan allows it. Alternatively, they may choose to roll over pre-tax dollars into a solo 401(k), especially if they are self-employed. Overall, a Clean Back Door Roth IRA can be a tax-efficient way to save for retirement for high-income earners. However, it is essential to consider the Pro-rata Rule and consult with a financial advisor to ensure the strategy aligns with your overall financial plan. https://inflationprotection.org/roth-ira-back-door-process-for-a-clean-conversion/?feed_id=103153&_unique_id=6477e73ca54da #Inflation #Retirement #GoldIRA #Wealth #Investing #BackdoorRothIRA
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