Understanding Backdoor Roth, Contributions, Conversions, and Income Limitations: A Comprehensive Guide | YMYW Podcast

"Hi Joe, Al and the Great and Powerful Andi! Regarding Podcast 391 at 23:54, 32-year-old Mike said he made his Roth $6000 "contribution" through a back door "conversion". Maybe I am off-base here, but I wonder if there is some confusion related to the conversion and contribution terms. His income for a "contribution" was too high for a direct Roth contribution. However; if he is converting to a ROTH IRA, that's a different story and he should NOT mark it on his taxes as a "contribution" because it is a conversion. The $6000 limit is also for a contribution but not a conversion. For Mike's sake, in case there is confusion on the terminology, can you explain the differences between ROTH contributions and their limits (income/contribution) compared to a ROTH conversion with limits (income/conversion NOT "contribution")? Thanks, Nancy" Listen to the entire Your Money, Your Wealth® podcast: Download the Complete Roth Papers Package, including the Ultimate Guide to Roth IRAs, the 5 Year Rules for Roth IRA Withdrawals, and the Roth IRA Basics Guide: Pure Financial Advisors, LLC is a fee-only Registered Investment Advisor providing comprehensive retirement planning services and tax-optimized investment management to thousands of people across the nation. Schedule a free assessment with an experienced financial professional: Office locations: Ask Joe & Big Al On Air: Subscribe to our YouTube channel: Subscribe to the Your Money, Your Wealth® podcast: IMPORTANT DISCLOSURES: • Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor. • Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations. • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. • Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. • All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. • Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors. CFP® - The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation. CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period....(read more)

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The Backdoor Roth IRA is a popular investment option for high-income earners who are not eligible for regular Roth IRA contributions due to income limits. In this article, we’ll discuss Backdoor Roth contributions, conversions, income limits, and how they work. Firstly, it’s important to understand what a Roth IRA is. A Roth IRA is a type of individual retirement account that allows individuals to make after-tax contributions and grow their money tax-free. Withdrawals from a Roth IRA are also tax-free as long as the account has been open for at least five years and the account owner is over 59 ½ years old. However, there is an income limit for Roth IRA contributions. For 2021, the income limit for single filers is $140,000 and for married couples filing jointly, it’s $208,000. If you earn more than these limits, you’re not eligible to contribute to a Roth IRA. This is where the Backdoor Roth IRA comes in. An individual can take advantage of the Backdoor Roth IRA by making a non-deductible contribution to a traditional IRA, and then converting that contribution to a Roth IRA. The conversion allows the individual to effectively make a Roth IRA contribution despite the income limitations. For example, let’s say John earns $250,000 a year and is not eligible to contribute to a Roth IRA due to the income limit. John could make a non-deductible contribution of $6,000 to a traditional IRA and then convert that contribution to a Roth IRA. The contribution is non-deductible because John’s income is above the limit, but the conversion is still allowed. It’s important to note that there are some tax implications to consider before making a Backdoor Roth IRA contribution. If you have any pre-tax contributions in your traditional IRA, it can complicate the process and potentially trigger taxes. Additionally, if you earn a high income, you may owe taxes on the conversion. To avoid any potential tax complications, it’s important to work with a financial advisor who can help guide you through the process. In conclusion, the Backdoor Roth IRA is a useful tool for high-income earners who want to take advantage of the benefits of a Roth IRA. By making a non-deductible contribution to a traditional IRA and then converting that contribution to a Roth IRA, individuals can effectively make a Roth IRA contribution despite the income limitations. However, before making any contributions or conversions, it’s important to consider potential tax implications and work with a financial advisor. https://inflationprotection.org/understanding-backdoor-roth-contributions-conversions-and-income-limitations-a-comprehensive-guide-ymyw-podcast/?feed_id=101844&_unique_id=6472833f72a52 #Inflation #Retirement #GoldIRA #Wealth #Investing #AlanClopine #backdoorroth #BigAlClopine #FinancialPlanning #financialpodcast #JoeAnderson #peerfinancial #personalfinance #personalfinancepodcast #purefinancialadvisors #retirementplanning #retirementpodcast #retirementspitball #rothcontribution #rothconversion #Rothincomelimits #RothIRA #rothiraexplained #rothiraexplainedsimply #TaxPlanning #YourMoneyYourWealth #BackdoorRothIRA #AlanClopine #backdoorroth #BigAlClopine #FinancialPlanning #financialpodcast #JoeAnderson #peerfinancial #personalfinance #personalfinancepodcast #purefinancialadvisors #retirementplanning #retirementpodcast #retirementspitball #rothcontribution #rothconversion #Rothincomelimits #RothIRA #rothiraexplained #rothiraexplainedsimply #TaxPlanning #YourMoneyYourWealth