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Backdoor Roth IRA

Backdoor Roth IRA

February 14, 2024

This strategy allows high-income earners to get money into a Roth IRA even though their income exceeds the limits. Allowing them to reap the benefits that come with Roth IRAs.

For example, single filers in 2024 who make over $146,000 are not eligible to contribute the full $7,000 ($8,000 if 50+) directly into a Roth IRA. For those married filing jointly making over $230,000 in 2024 you also are not eligible to contribute the full $7,000 ($8,000 if 50+) directly into a Roth IRA.

This is where the backdoor Roth IRA comes in to play.

How does it work? 30,000 ft view.
1. Have an empty Traditional IRA, Simple IRA, SEP IRA
a. Pro Rata Rule applies here if not.
2. Open a Traditional IRA
3. Make a non-deductible contribution to a Traditional IRA
4. Convert that contribution to a Roth IRA
5. Notify tax advisor before tax filing

Why should high-income earners consider it?
- Enjoy tax-free growth.
- No RMD requirements: Traditional IRAs have RMD requirements. Roth IRAs have NO RMD requirements during your lifetime.
- Tax-free withdrawals down the road.
- Tax flexibility later on.

Be sure to consult with a financial advisor and tax advisor so they can help determine if this strategy makes sense because there are some nuances involved.

Disclaimer:
Retirement Planning Solutions, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Retirement Planning Solutions, LLC by the SEC nor does it indicate that Retirement Planning Solutions, LLC has attained a particular level of skill or ability. This material prepared by Retirement Planning Solutions, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Retirement Planning Solutions, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Retirement Planning Solutions, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Retirement Planning Solutions, LLC is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.