Despite the recent market volatility, we still need to save for retirement! Roth accounts can be a great source of tax-free income in retirement when used correctly. Some high-income earners cannot fund Roth IRAs directly, but there is a strategy many folks can use to get money into this account. This is commonly referred to as the Backdoor Roth IRA.
Roth IRA. What is it? A Roth Individual Retirement Account (IRA) is an account you fund with money that has already been taxed, and then qualified withdrawals are not taxable. In 2019 and 2020, you can contribute up to $6,000/person as long as you are below the income limits. Depending on your tax filing status, if you make anywhere from $0-203,000, you may not be able to contribute directly into this account.
The back door. There are no income restrictions on converting money into a Roth IRA. The back-door strategy involves opening a Traditional IRA, making your contribution into that account, and then converting the money into a Roth IRA. It’s more complicated than that, so listen to the episode!
Tax filing. You must pay attention to your tax filing status and report contributions and conversions correctly. If you don’t, you may end up overcontributing or paying taxes that you do not owe.
Tip of the Day: You can make prior year IRA contributions up until the tax filing deadline for the year. You have until 4/15/2020 to make 2019 contributions!
For more financial planning tips from Corey and Rachelle find them on LinkedIn: @CoreyJanoff and @RachelleVanderzanden; Instagram: @CoreyJanoff and @VanderzandenRachelle; and Twitter: @CoreyJanoffCFP and @RachelleFinance
Discussions in this show should not be construed as specific recommendations, legal, or investment advice. Always consult with your investment professional before making important investment decisions. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Securities offered through Cambridge Investment Research, Inc., a registered Broker/Dealer, Member FINRA/SIPC. Finity Group and Cambridge are not affiliated.