We know that tax-deferred growth accounts such as a Roth IRA is one of the best investment vehicles we can use. But let's say that you have the great problem of making more than $138,000/year (filing Single) – Well, you can't contribute into one anymore! Thankfully, we can use something called a Backdoor Roth. Nic explains how high-income earners can still reap the benefits of tax-free dollars in retirement. Host: Nic Daniels BFA™, Financial Advisor The Real Money Pros ————————————————————— SPONSORS: Academy Mortgage Lively (HSAs and FSAs) Tree City Advisors of Apollon ————————————————————— Chapters: 00:00 - Intro 00:30 - Why contribute to IRAs? 01:28 - How a Backdoor Roth Conversion works 07:12 - Outro...(read more)
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Using a BACKDOOR ROTH for Tax-Deferred Growth Many individuals are familiar with the concept of a Roth IRA, which allows you to contribute after-tax dollars and receive tax-free withdrawals in retirement. However, high-income earners are often unable to contribute directly to a Roth IRA due to income limitations. This is where the concept of a "backdoor Roth IRA" comes in – a strategy that allows high-income earners to take advantage of the tax benefits of a Roth IRA through a slightly different avenue. Firstly, let's understand how a backdoor Roth IRA works. The term "backdoor" comes from the process of making a non-deductible contribution to a Traditional IRA and then converting this Traditional IRA into a Roth IRA. By doing this, you essentially bypass the income limitations on Roth IRA contributions. To utilize a backdoor Roth IRA strategy, follow these steps: 1. Check your eligibility: As mentioned earlier, high-income earners may be disqualified from contributing directly to a Roth IRA. However, there are no income limitations for making non-deductible contributions to a Traditional IRA. 2. Contribute to a Traditional IRA: Make a non-deductible contribution to a Traditional IRA. Keep in mind the annual contribution limits, which are $6,000 for individuals under 50 and $7,000 for those 50 and older. 3. Convert to a Roth IRA: Once your non-deductible contribution is made, promptly convert the funds into a Roth IRA. This conversion is tax-free, provided you do not have any pre-tax dollars in your Traditional IRA. Pay close attention to the timing to minimize any potential tax implications. Now let's explore the benefits of using a backdoor Roth IRA for tax-deferred growth: 1. Tax-free growth: Similar to a regular Roth IRA, the backdoor Roth IRA allows for tax-free growth on your investments. Over time, this can result in significant savings as your earnings compound without any tax implications. 2. Retirement flexibility: By contributing to a retirement account that offers tax-free withdrawals, you'll have more control over your tax liability in retirement. This becomes increasingly valuable if tax rates rise or if you find yourself in a higher income bracket during retirement. 3. Estate planning advantages: Roth IRAs offer unique estate planning opportunities. Any funds in a Roth IRA will pass tax-free to your beneficiaries, allowing them to continue benefiting from tax-free growth. This can be a valuable asset to pass on to future generations. 4. Diversify tax strategies: Utilizing a backdoor Roth IRA can serve as a tool to diversify your tax strategies in retirement. If you have a combination of pre-tax retirement accounts (such as a 401(k) or Traditional IRA) and a Roth IRA, you'll have the flexibility to withdraw from different accounts depending on your tax situation and optimize your tax liability. In conclusion, a backdoor Roth IRA is a valuable strategy that high-income earners can use to benefit from tax-deferred growth. By making non-deductible contributions to a Traditional IRA and quickly converting it into a Roth IRA, you can enjoy the tax-free growth and flexibility that a Roth IRA offers. It is important to consult with a financial advisor or tax professional to ensure you navigate the process correctly and maximize the benefits of a backdoor Roth IRA for your specific financial situation. https://inflationprotection.org/tax-deferred-growth-through-the-utilization-of-a-backdoor-roth-strategy/?feed_id=118301&_unique_id=64b581bfea545 #Inflation #Retirement #GoldIRA #Wealth #Investing #account #advisors #affiliate #backdoor #boise #broadcast #business #daniels #Deferred #education #Finance #financialadvisor #financialplanner #firm #highincome #idaho #individualretirementaccount #investing #ira #kboi #LongTerm #MegaBackdoor #money #newstalk #nic #nonqualified #Planning #Podcast #Qualified #radio #Retirement #ROTH #shortterm #Stocks #tax #taxes #therealmoneypros #traditional #treecity #westwoodone #wiley #BackdoorRothIRA #account #advisors #affiliate #backdoor #boise #broadcast #business #daniels #Deferred #education #Finance #financialadvisor #financialplanner #firm #highincome #idaho #individualretirementaccount #investing #ira #kboi #LongTerm #MegaBackdoor #money #newstalk #nic #nonqualified #Planning #Podcast #Qualified #radio #Retirement #ROTH #shortterm #Stocks #tax #taxes #therealmoneypros #traditional #treecity #westwoodone #wiley
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