The Rich TAX LoopHole, the Backdoor Roth IRA!
Yes, this is a method used by the wealthy who cannot qualify for a regular Roth IRA.

This method allows you to save hundreds of thousands of dollars on taxes, and its relatively simple.
All you have to do is create both an IRA and a Roth IRA account, preferably at the same financial institution. then you fund your IRA, and transfer those funds to a Roth IRA. The key is that you make INDIRECT contributions to your Roth IRA, rather than DIRECT contributions! AWESOME!

BUT! there are some key notes you have to look out for.
In this video I cover what these accounts are and how you can take advantage of them in order to save on your tax obligations!

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CHAPTERS:
0:00 Introduction
0:20 Roth IRA
0:38 Traditional IRA
1:00 The benefits of Roth IRA & Examples
3:05 The PROBLEM with Roth IRA
3:33 Backdoor Roth IRA – the method
4:08 HOW to convert your funds from Traditional IRA to a Roth IRA
5:53 Potential downsides of doing backdoor Roth IRA
6:05 The PRO RATA Rule & examples
8:11 Conclusion on Backdoor Roth IRA

Note: ALWAYS Consult a TAX Professional / Financial Advisor!

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Taxes are one of the biggest expenses in our lives. Fortunately, there is a way to lower your taxes by using a backdoor Roth IRA. This is a powerful tool that can help you pay less in taxes, both now and in retirement. In this article, we’ll explain what a backdoor Roth IRA is, why it’s beneficial, and how to set one up.

What is a Backdoor Roth IRA?

A traditional Roth IRA is a type of retirement account where you contribute after-tax dollars. The benefits of a Roth IRA are that you don’t have to pay taxes on the earnings or withdrawals in retirement.

However, if you earn too much, you can’t contribute to a Roth IRA. In 2021, the income limit for single filers is $140,000, and for married filing jointly, it’s $208,000. This is where the backdoor Roth IRA comes in.

A backdoor Roth IRA is a loophole that allows high earners to contribute to a Roth IRA, even if they exceed the income limits. This is done by converting a traditional IRA into a Roth IRA, regardless of income.

The Best Time to Use a Backdoor Roth IRA

The best time to use a backdoor Roth IRA is when you expect to have a lower income in the future. For example, if you’re a high earner now, but plan on retiring in the next few years, your income will drop, and you’ll be in a lower income tax bracket. This makes it an ideal time to do the conversion to a Roth IRA.

Another ideal time is when you’re just starting your career and expect to earn more in the future. Since you won’t be able to contribute directly to a Roth IRA, you can start with a traditional IRA and convert it later when you’re earning more.

How to Set Up a Backdoor Roth IRA

Setting up a backdoor Roth IRA is a simple process. You’ll need to follow these steps:

1. Open a Traditional IRA: You can open a traditional IRA with any investment firm.

2. Make Contributions: You can make contributions to the traditional IRA, up to the annual limit of $6,000 per individual or $7,000 for those over age 50.

3. Convert to a Roth IRA: Once you’ve made contributions, you can convert the traditional IRA to a Roth IRA. The conversion will be treated as taxable income and you’ll need to pay taxes on the amount converted.

4. Pay Taxes: The taxes owed will depend on your income level and the amount converted. To avoid any penalties, make sure to pay taxes on the conversion before the deadline for filing your taxes.

In conclusion, a backdoor Roth IRA is a powerful tool that can help lower your taxes. By converting a traditional IRA to a Roth IRA, high earners can take advantage of the benefits of the Roth IRA, even if they exceed the income limits. It’s essential to consult with a financial advisor for guidance on your specific tax situation and make sure that a backdoor Roth IRA is right for you. With proper planning, a backdoor Roth IRA can be an effective strategy for reducing taxes and securing your retirement.