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[How to contribute to a Roth IRA with high income]
There are many advantages of the Roth IRA. However, one of the limitations of the Roth IRA is the maximum income limit.
For 2020, the Roth IRA phase out starts at $124,000 if you’re single, and $196,000 if you’re married filing jointly. Because of this income limit, high-income earners are unable to contribute DIRECTLY to a Roth IRA.
But, thanks to a tax loophole, high-income earners can still contribute INDIRECTLY using a method called a “Backdoor Roth IRA”. In this video, we walk you through the simple steps of How to Do a Backdoor Roth IRA, give you step-by-step instructions and an example using Fidelity, as well as some important need-to-know items (pro rata rule, Form 8606, and more).
0:00 Intro
Why Do a Backdoor Roth IRA
Open a Traditional IRA and a Roth IRA
Contribute to a Traditional Roth IRA
Immediately Convert Traditional IRA to Roth IRA
Choose an Investment Within Your Roth IRA
More Need To Know Information
Outro
Bloopers
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📒 Show Notes:
► Roth IRA income and contribution limits:
► Instructions for Form 8606:
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DISCLAIMER: Monique Nguyen and Laura Saldana, including but not limited to any guests appearing in their videos, are not financial/investment advisors, brokers, or dealers. They are solely sharing their personal experience and opinions; therefore, all strategies, tips, suggestions, and recommendations shared are solely for entertainment purposes. There are financial risks associated with investing; therefore, do not act or refrain from acting based on any information conveyed in this video, webpage, and/or external hyperlinks. For investment advice please seek the counsel of a financial/investment advisor(s); and conduct your own due diligence.
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FYI I recently spoke to Fidelity. They told me that after you contribute money to a Traditional IRA, it takes 5 BUSINESS days before you can convert it to a Roth IRA. Fidelity said this delay is the amount of time it takes for your money to be available to withdraw. They said another place you can go to check whether your money is available for conversion is to check your balance and look to see if it says the cash is available to withdraw.
One of my favorite things to do to start of the new year!
If I have already maxed out my Roth contribution for the year, can I still do the back door for that year or do I need to wait until next year? Love the channel btw!
This is so helpful. Thank you!
Thank you so much for a really clear explanation of backdoor Roths. Question: I am married and want to contribute the total $12k. Do I need to open separate IRAs and Roth IRAs for both of us, or can the total contributions be made to/from one of each accounts? I hope that question makes sense! Thanks again
Thanks for the video! I have a question about the tax on back door roth: I heard that the deadline to convert money from traditional ira to Roth IRA is 12/31, but the contribution deadline is 4/15, is that true? This month I have done the Roth conversion of 6000 dollars for the year 2020, so the conversion part will be shown in next year’s 1099r right? Or I actually can not convert to Roth since it is past the cutoff date of rollover for year 2020? Thanks!
One Question here:
I am single and if I want to contribute for 2021 Roth IRA with full $6000 upfront in the first month of 2021 but I am not sure what will be my income in the 2021. It may fall below or go above the threshold set by IRS, so in that case how I am able to make decision that I should max out my contribution or not since the year 2021 just started and not sure what will be income by end of the year 2021?
Is it the case that my 2020 annual income should be less than $124K so that it makes eligible to contribute $6000 max for 2021 Roth IRA and the annual income in 2021 should be less than $125K, so that I will make eligible to contribute $6000K in 2022 Roth IRA and so on… Basically, the previous year annual income will determine the contribution limit for the following year?
When should I file form 8606 for IRA contributions of year 2021? Will it be tax deadline of next year April 2022?
Hi, thanks for the video! I am a little confused on the Pro Rata Rule. If I don't have any IRA accounts and doing this from scratch, is the Pro Rata Rule still apply? Say I used $6 000 from my after tax money (from my bank account) to fund the traditional IRA account and then immediately transfer the fund to Roth account, do I need to pay tax on that $6000 (which is my after tax money)? According to your fomula: Total afrer-tax $ ($6000)/ total value of all IRAS (S6000) * amount converted to Roth ($6000) = 1*$6000 = $6000 to be considered after-tax. So, I don't need to pay tax right? because all the money into the Roth account is considered after-tax
I’m glad you guys, always make amazing information on your channel
Thank you for the refresh of this video!
Quick question, for 4:22 to 4:29 of this video. In this screen, you cut off the bottom portion of the form, asking "Would you like to withhold taxes?", and didn't discuss what to select. When I'm on this screen in Fidelity, it asks "When you transfer money from your traditional IRA to a Roth IRA, you'll need to pay taxes. You can do this now, or wait for your annual tax filing." The options are either "I don't want to pay the taxes now" or "I want to pay the taxes now". So which do you choose? I want the funds in the Traditional IRA to be considered non-deductible, but for some reason there seems to be no way to designate deductible vs. non-deductible. I don't want to have to pay any taxes on any of the $6,000 I'm transferring/converting to Roth. Please help, thanks
What if you already have a Roth IRA? Does this still work?
Very informative and fruitful!!!
Another great video, make sure to watch until the end!
Can y’all do a video explaining Bitcoin like I’m five?!
From a fellow pharmacist, thanks for the info!
Is the video length a coincidence? Or are you trying to tell us something
Beautiful and brains!
I Love ❤️ my Roth IRA
Keep up the work ladies, really good stuff!
Another great video! Thanks for sharing this info!