The Backdoor Roth IRA is an amazing TAX LOOPHOLE that allows you to continue contributing to your Roth IRA even if you’re above the income limits!
In this video, Chaps walks you through the background and gives a step-by-step tutorial on how to perform a Backdoor Roth IRA Conversion.

Referenced Videos:
– Our Finance Playlist:
– Traditional vs Roth 401k –

Other References:
– Additional Backdoor Roth Info –
– Backdoor Roth Guide –
– Backdoor Roth Screwups –

Timestamps:
00:00 – Intro & Background
00:39 – What is an IRA
01:46 – What is the Backdoor Roth IRA
02:24 – Step-By-Step (simplified)
03:03 – Step-By-Step (detailed)
03:51 – Avoid These Issues
05:19 – Legal Implications
05:35 – Wrap-Up & Closing Comments

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*Disclaimer*
I am not a financial professional. Nothing discussed in this video should be considered legal advice or financial advice. It is purely an informative take on my interpretation of my findings….(read more)

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Backdoor Roth IRA – What Is It & Step-by-Step Guide

If you’re looking for a way to save for retirement and reduce your tax liability, a backdoor Roth IRA may be the right option for you. A backdoor Roth IRA is a method of contributing to a Roth IRA indirectly, even if your income exceeds the limits for direct contributions.

What is a Roth IRA?

A Roth IRA is a type of retirement account that allows you to contribute after-tax dollars and withdraw the funds tax-free during retirement. Unlike traditional IRAs, contributions to a Roth IRA are not tax-deductible, but the earnings grow tax-free.

What is a Backdoor Roth IRA?

A backdoor Roth IRA is a way to contribute to a Roth IRA indirectly if your income exceeds the limits for direct contributions. In 2021, the income threshold for contributing to a Roth IRA is $140,000 for single filers and $208,000 for married couples filing jointly.

How Does a Backdoor Roth IRA Work?

To contribute to a backdoor Roth IRA, you’ll need to take the following steps:

Step 1: Contribute to a Traditional IRA – To start, you’ll need to contribute to a traditional IRA. Because traditional IRA contributions are tax-deductible, you’ll need to make a non-deductible contribution. Be sure to file Form 8606 with your tax return to let the IRS know that you’ve made a non-deductible contribution.

Step 2: Convert Your Traditional IRA to a Roth IRA – Once you’ve made a non-deductible contribution to your traditional IRA, you can convert that amount to a Roth IRA. The conversion process transfers the funds from your traditional IRA to your Roth IRA.

Step 3: Pay Taxes on the Conversion – Because you’re converting pre-tax dollars to after-tax dollars, you’ll need to pay taxes on the conversion. However, because you’ve already paid taxes on the non-deductible contribution, you’ll only need to pay taxes on any earnings.

Step 4: Enjoy Tax-Free Retirement Savings – Once you’ve completed the conversion, your funds will be in a Roth IRA. You’ll be able to enjoy tax-free growth and withdrawals during retirement.

Benefits of a Backdoor Roth IRA

A backdoor Roth IRA offers several benefits, including:

– Tax-Free Growth and Withdrawals – The biggest benefit of a Roth IRA is that all earnings and withdrawals are tax-free.
– High Contribution Limits – The contribution limits for a Roth IRA are higher than those for a traditional IRA.
– No Required Minimum Distributions – Unlike traditional IRAs, Roth IRAs don’t have required minimum distributions (RMDs) during retirement.

Bottom Line

A backdoor Roth IRA is a great option for high-income earners who want to save for retirement and reduce their tax liability. By following the steps outlined above, you can make non-deductible contributions to a traditional IRA and then convert those funds to a Roth IRA, enjoying tax-free growth and withdrawals during retirement.