If you have ever spent much time reading either in books or online about the best types of accounts to use to save for retirement, you have seen many financial experts argue that the Roth IRA is one the best. So when I got a question on one of my other videos about how to use Roths IRAs, I knew I needed to cover 2 very specific but very powerful Roth IRA strategies. The first strategy is called “backdoor” contributions, and the next is “superfunding” or “mega backdoor” Roth contributions. Not everyone is eligible to use Roth IRA accounts or these strategies, so you need to do your research or seek professional tax advice before implementing them in your own retirement plan. So in this video we are going to cover what these 2 strategies are and make sure to stick around because I’ll cover exactly how I save about $40,000 into my Roth IRA every year.

The first Roth IRA strategy were going to cover is the backdoor contribution. I don’t actually utilize this strategy myself, but I know many people who do and it can be a great way to get access to a Roth IRA when you otherwise might not have been able to. But as always, consult your tax and financial professional before implementing any financial strategy on your own. You see, people who earn a lot of money are not eligible to contribute directly to Roth IRAs at all. In 2021, single people who earn a modified adjusted gross income of over $140,000 are “phased out” of eligibility per the IRS rules. This “phasing out” also applies to married couples who file their taxes jointly and earn a MAGI of over $208,000, or married couples who file taxes separately and earn almost any MAGI income at all. And if you know of the huge tax advantages that Roth IRAs can offer later in life, you know that these people are really being disadvantaged… at least from a tax perspective. The backdoor Roth IRA contribution is a solution to this problem.

The general premise of this backdoor Roth contribution is that a person would open a traditional IRA, make a non-deductible contribution into it, then process a Roth conversion into a Roth IRA. However, there are several variables with each of these steps that can make this a pretty complicated transaction from a tax perspective. And keep in mind this strategy is still limited to the annual IRA contribution limits which right now are $6,000 per person who is below the age of 50, and $7,000 for those people age 50 and older. There are also very important things to consider here like any existing basis in a traditional IRA account, making sure not to list a retirement account deduction, and using the right paperwork on the actual conversion from traditional to Roth. A mistake in any of these areas, can create some serious tax issues. So again DO NOT DO THIS ON YOUR OWN; seek the help of qualified professionals.

Now the next strategy is a big one. Very few people know about how to get more than the annual limit into their Roth IRA accounts, and many who do know about it still may choose not to do it. This “super funding” strategy as its called does have its pros and cons. But like I mentioned at the beginning of the video, this is the method I personally use to get around $40,000 into my Roth each year, and you could do even more than that if you wanted to.

To utilize this strategy, you need to be working and have an after-tax provision in your 401(k) plan. The common confusion here is between Roth 401k and after-tax 401k. So, let me be clear. You must have an after-tax provision in the plan. This is different from a Roth 401k provision. If you only have a Roth 401k option, this will not work. The IRS won’t let you roll funds out of a Roth 401k into a Roth IRA.

If you have an idea of something you want me to cover in depth, please let me know because I take your requests seriously. Will be back with more CFA Exam tips in a couple of weeks so please submit more questions you would like to hear answered. Love you all!

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*** The information in this video is not intended or implied to be a substitute for professional financial advice. All content, including text, graphics, images, and information, contained in this video is for general information purposes only and does not replace a consultation with your financial or tax professional***…(read more)

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As an AI language model, I have no personal experience or financial capacity to invest. However, I’ll try to generate an article with the given topic about how to put $40,000 in a Roth IRA every year.

Retirement savings are essential to ensure financial security during the golden years. The Roth IRA is an excellent retirement savings option for individuals looking to invest tax-free and take advantage of compound interest. While the current contribution limit for a Roth IRA is $6,000 annually, there are ways to maximize savings and put up to $40,000 into a Roth IRA every year.

The first step is to have a high income, making contributions into a Roth IRA with an upper income limit. In 2021, individuals earning over $140,000 per year and couples making more than $208,000 per year cannot contribute to a Roth IRA. However, there is a way around that limit.

Alternatively, individuals earning above the income limit can create a backdoor Roth IRA. This is done by contributing to a traditional IRA, then immediately converting it to a Roth IRA. Additionally, a Mega Backdoor Roth IRA can be used in which an employee is permitted to convert post-tax contributions on their 401(k) to Roth contributions. In both cases, the IRS allows individuals to contribute up to $58,000 annually.

Another option to increase Roth IRA contributions is to participate in a Solo 401(k). This plan is available to self-employed individuals or those running their own business with no employees. Solo 401(k) contributions are tax-deductible and can be up to $58,000 annually. A portion of these contributions can be allocated towards a Roth account.

Investing in real estate is another way to increase Roth IRA contributions. Purchasing rental properties using a self-directed Roth IRA allows individuals to diversify their retirement portfolio and grow their savings tax-free. Rental income can be deposited to the Roth IRA account and later used for any approved retirement expenses.

In summary, contributing up to $40,000 into a Roth IRA every year requires a high income, using a backdoor Roth IRA or a Mega Backdoor Roth IRA, participating in a Solo 401(k), or investing in real estate with a self-directed Roth IRA. Each option offers unique advantages and disadvantages, and individuals should consult a financial advisor to select the best course of action for their financial goals.