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A backdoor Roth IRA lets high-income earners convert after-tax traditional IRA funds to Roth IRA for tax free growth. Learn the process and tax implications.
(Single filers with incomes over $161,000 and married couples filing jointly with incomes over $240,000 in 2024 can’t contribute to a Roth IRA.) This conversion strategy is known as a backdoor ...
However, a Roth conversion also comes with immediate tax consequences that require careful planning. Read Next: Suze Orman’s Top 5 Tips That Will Save Retirees From Financial Disaster
A Roth conversion doesn’t make sense for everyone, so it’s a good idea to speak with a financial advisor or a tax expert before making the move. Benefits of a traditional IRA
A Roth IRA conversion can be a great idea if you want to create tax-free income in retirement, but you’ll want to understand the trade-offs, especially the immediate tax consequences of converting.
Can be converted to a Roth IRA, typically for backdoor Roth IRA contributions. Taxes need to be paid during the year of the conversion. Also, the non-basis portion can be rolled over into a 401(k), if allowed by the 401(k) plan. Changing Institutions Can roll over to another employer's 401(k) plan or to a rollover IRA at an independent institution.
A backdoor Roth IRA can be relatively easy to set up, but you’ll want to carefully consider the potential costs and tax liabilities of doing so (more below). Here are the key steps: 1.
Ideally, to implement the backdoor Roth strategy you’d contribute to an empty traditional IRA – the only one you have – to avoid extra tax complications for the conversion.
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