Learn about the benefits and limitations of a Backdoor Roth IRA, and how AT&T employees can use this strategy to boost their retirement savings in this informative Q&A session.
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Disclaimer: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Fees are incurred when assets are under the management of advisors affiliated with The Retirement Group. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. Securities offered through FSC Securities Corporation, member FINRA/SIPC. Investment Advisor Representative of & Advisory Services offered through The Retirement Group, LLC. The Retirement Group is not affiliated with AT&T. The Retirement Group 5414 Oberlin Drive San Diego, CA 92121 (800) 900-5867…(read more)

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As an AT&T employee, you may have heard of a Backdoor Roth IRA. It is a popular investment strategy used by many individuals to save for retirement. A Backdoor Roth IRA is a type of traditional IRA that enables individuals to make Roth IRA contributions, even if their income surpasses the limit set by the IRS.

In a traditional IRA, you can deduct your contributions from your taxable income, while in a Roth IRA, you cannot. Instead, withdrawals from a Roth IRA are tax-free. This means that if you believe that your taxes will be higher in the future, you may prefer Roth IRA contributions over traditional IRA contributions, where you pay taxes upon withdrawal.

However, if you earn too much money, you may not be able to contribute to a Roth IRA. As of 2021, the IRS limits contributions to $6,000 per year for individuals under 50 years of age, and $7,000 for those over 50. Additionally, there are income limits that prevent individuals who earn above a certain threshold from making Roth IRA contributions.

This is where a Backdoor Roth IRA can come in handy. It allows high-income earners to make a nondeductible traditional IRA contribution and then convert it to a Roth IRA. The conversion is allowed because there is no income limit for Roth IRA conversions. Therefore, even if you earn too much to make direct Roth IRA contributions, you can still contribute to a traditional IRA and convert it to a Roth IRA.

There are some important things to keep in mind when considering a Backdoor Roth IRA. First, you may have to pay taxes on the conversion if you have not paid taxes on the traditional IRA contribution. Second, if you already have traditional IRA funds, the conversion may trigger a tax bill. Finally, if you have multiple traditional IRA accounts, you cannot choose which account to convert, but must convert a proportional amount from all traditional IRAs.

In summary, a Backdoor Roth IRA is a strategy that high-income earners can use to make Roth IRA contributions, even if they are not eligible to make direct contributions. However, it is essential to consider the tax implications and potential hurdles before deciding to pursue this strategy. If you are considering a Backdoor Roth IRA, it is advisable to consult with a financial advisor to ensure that it aligns with your long-term financial goals.