What is a Backdoor Roth IRA?
Have you ever heard of a Roth IRA backdoor? Yes, it IS one thing. And no, that’s it NOT something you do in the bedroom! A backdoor Roth IRA is a way to save for retirement if you want to take advantage of the benefits of a Roth IRA but don’t qualify for it.
Learn when and why you should use a backdoor Roth IRA:
The When, Why and How of Backdoor Roth IRAs
In this episode of Queer money® we’ll tell you what you need to know about Roth backdoor IRAs. We examine the tax advantages of the Roth IRA, its income limits for contributions, and explain how the backdoor Roth offers people who earn too much in a given year the benefits of a Roth—without the restrictions.
We also discuss the results of our Queer money® Facebook Group Survey on Taxable Income, define the concept of modified adjusted gross income (MAGI) and provide examples of circumstances in which YOU might benefit from a backdoor Roth IRA. Listen to the step-by-step process for starting a backdoor Roth IRA and learn how a financial advisor can help you (no matter how much you make) take advantage of loopholes like these!
Topics Covered About Backdoor Roth IRAs
A general overview of backdoor Roth IRAs
Loophole for those who earn too much to qualify for Roth
Roth limits = $124,000 for individuals, $196,000 for married couples
The Definition of Modified Adjusted Gross Income (MAGI)
Gross = total income from the employer or company
MAGI = Gross – individual deductions and personal allowance
If an average income earner could use a backdoor Roth IRA
Inheritance from a deceased family member
Capital gains from the sale of shares
Unusually high commission (e.g. real estate agent)
Why You May Want to Use a Backdoor Roth IRA
No taxes on investment growth or withdrawals
No minimum distribution requirements
The results of our Facebook group survey on taxable income
85% said their taxable income would be higher AFTER retirement
12% said their taxable income is higher BEFORE retirement
The difference between a Roth conversion and a backdoor Roth IRA
Conversion = move money from existing traditional to Roth
Back door = invest money in new traditional, then switch to Roth
Both are taxable events, but capital gains tax applies on the conversion
How to initiate a backdoor Roth IRA
- Open NEW Traditional IRA and Roth IRA
- Deposit excess money traditionally
- Convert money to Roth instantly