If you have the option through your employer-sponsored retirement plan to make non-deductible contributions to an IRA after you max out your 401(k) limits, you may be able to use a Backdoor Roth. In this episode of , CERTIFIED FINANCIAL PLANNER™ Professionals Tom Kennedy and Kevin M. Curley, II cover the specifics. Work with your CPA or financial advisor before you make these rollovers. We also discuss long-standing financial trends, the potential for a Eurozone downturn, and emerging markets debt.

Find it Fast:
Backdoor Roth Strategy
00:00—Intro
1:30—New contribution limits
2:50—After-tax backdoor rollover to Roth IRA for income-restricted investors
8:15—Step rule transaction

Headlines
12:50—Are long-standing financial trends like the 0% interest rates over?
15:00—Is the Eurozone headed for another downturn?
17:02—Emerging markets debt issuance hits a record
19:37—DeepMind using AI to reduce drug development times

Review and Outlook
21:55—Review bold prediction that S&P 500 nearly hit 5,000
22:10—How the market changes during an election year
27:01—Are we currently in a recession?

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Listen in to the Your Money Momentum podcast published twice monthly where you listen to your favorite pods or watch our latest video session on YouTube at Your Money Momentum.

Your Money Momentum podcast is produced by: Pamela Engstrom
Music by: PWISBY “Ruff”

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The Backdoor Roth IRA Rollover Strategy: A Guide to Tax-Free Retirement Savings

For high-income earners, contributing to a Roth IRA can be a challenge due to the income limitations set by the IRS. However, there is a little-known strategy called the “Backdoor Roth IRA Rollover” that allows individuals to bypass these income limits and take advantage of the tax benefits of a Roth IRA.

What is a Backdoor Roth IRA Rollover?

A Backdoor Roth IRA Rollover is a strategy that allows individuals to contribute to a Roth IRA even if their income exceeds the limits set by the IRS. Typically, individuals with incomes above a certain threshold are not allowed to make direct contributions to a Roth IRA. However, by utilizing the Backdoor Roth IRA Rollover strategy, high-income earners can make nondeductible contributions to a traditional IRA and then convert those funds into a Roth IRA.

How does it work?

The process of executing a Backdoor Roth IRA Rollover involves several steps. First, the individual makes a nondeductible contribution to a traditional IRA. Since there are no income limitations for contributing to a traditional IRA, this step is accessible to everyone. Once the money is in the traditional IRA, the individual can then convert the funds to a Roth IRA. This conversion is typically a straightforward process that involves filling out paperwork with the financial institution that holds the IRA accounts.

Benefits of the Backdoor Roth IRA Rollover Strategy

One of the main benefits of using the Backdoor Roth IRA Rollover strategy is the ability to take advantage of the tax-free growth and distributions that come with a Roth IRA. Unlike traditional IRAs, Roth IRAs allow for tax-free withdrawals in retirement, providing a significant tax advantage for individuals who expect to be in a higher tax bracket in the future.

Additionally, the Backdoor Roth IRA Rollover strategy allows individuals to circumvent the income limitations that prevent them from contributing directly to a Roth IRA. This means that high-income earners can still take advantage of the benefits of a Roth IRA and diversify their retirement savings.

Considerations and Risks

While the Backdoor Roth IRA Rollover strategy can be a powerful tool for high-income earners, there are some considerations and risks to be aware of. One potential downside is the “pro-rata rule” which can result in additional taxes if an individual has other traditional IRA accounts with pretax contributions.

Additionally, it’s important to consult with a financial advisor or tax professional before executing a Backdoor Roth IRA Rollover to ensure that the strategy aligns with your overall financial plan and goals.

In conclusion, the Backdoor Roth IRA Rollover strategy is a valuable tool for high-income earners who are looking to maximize their retirement savings. By utilizing this strategy, individuals can take advantage of the tax benefits of a Roth IRA and set themselves up for a tax-free retirement. However, it’s essential to carefully consider the potential risks and consult with a professional to ensure that the strategy is suitable for your specific financial situation.