“Hello, love the show! My wife and I are 41, have 4 kids, I drive a 2020 Nissan Altima and we have a cat. I have a rollover IRA worth about $315k, Roth IRA of about $100k and a 401k at work of about $125k. My wife has a $18k Rollover IRA and a $75k Roth IRA. We also have a taxable brokerage account worth $125k. We make too much to do a Roth contribution. We plan to convert her rollover IRA to her Roth and pay the taxes from our brokerage account. My question is, can we convert my wife’s rollover IRA to her Roth IRA and also contribute to a non-deductible IRA and convert that to a Roth (backdoor style) in the same year or do we have to wait until next year to do the backdoor? Thanks again Ben, Fargo ND”

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If you are looking to maximize your retirement savings, then you might have heard about Roth conversions, Roth contributions, and backdoor Roth contributions. While these terms might sound confusing, they are all different ways to save for your future.

A Roth conversion is when you move money from a traditional IRA into a Roth IRA. The benefit of a Roth conversion is that you pay taxes on the money now, but all future withdrawals are tax-free. This means that you can grow your retirement savings without worrying about paying taxes on your withdrawals in the future.

On the other hand, a Roth contribution is when you contribute money directly to a Roth IRA. The contribution limits for a Roth IRA are the same as a traditional IRA, but the benefit is that your withdrawals in retirement will be tax-free.

Finally, a backdoor Roth contribution is when you contribute to a traditional IRA and then convert that money into a Roth IRA. This is a common strategy for high-income earners who are not eligible to contribute directly to a Roth IRA. By using the backdoor Roth contribution, they can still take advantage of the tax-free withdrawals in retirement.

So, can you do all three in the same year? The answer is yes, but you need to be careful about the tax implications. When you convert money from a traditional IRA to a Roth IRA, you have to pay taxes on the conversion amount. If you also make a contribution to a Roth IRA in the same year, then the total amount of your contributions and conversions cannot exceed the annual contribution limit.

Additionally, if you make a contribution to a traditional IRA and then convert it to a Roth IRA in the same year, you need to be aware of the pro-rata rule. This rule states that if you have other traditional IRA funds, the amount of your conversion that is taxable cannot be calculated solely on the amount of your contribution.

In summary, doing a Roth conversion, Roth contribution, and backdoor Roth contribution in the same year is possible. However, it is crucial to understand the tax implications and contribution limits to avoid any penalties or additional taxes. If you are uncertain about these strategies, it is always a good idea to consult with a financial advisor to determine the best plan for your retirement savings.