On Your Money, Your Wealth® podcast #297 with Joe Anderson, CFP® and Big Al Clopine, CPA: What is the MEGA backdoor Roth IRA conversion and should you do one? How do you create retirement income for the gap between retiring at 66 and taking Social Security at 70 and RMDs at 72? Joe and Big Al also answer a question on the taxation of an overseas inheritance, and they discuss your comments. Access the episode transcript and financial resources and send in your money questions to be answered on the YMYW podcast:

00:53 – Roth Conversion or Retirement Income in Gap Years?
07:01 – Mega Backdoor Roth IRA Conversion
17:42 – Mega Backdoor Roth IRA Conversion
24:46 – Taxation on Overseas Inheritance?
30:47 – Comment: FIRE YMYW TV Episode
32:20 – Comment: Don’t Call it the Backdoor Roth Show

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The Barn Door, Garage Door, Mega Backdoor Roth IRA Conversion – Your Money, Your Wealth® podcast 297 is a must-listen for anyone considering a Roth IRA conversion. Hosts Joe Anderson and Alan Clopine break down the different types of Roth IRA conversions and explain how the Mega Backdoor Roth IRA conversion can be a game-changer for high-income earners.

The podcast kicks off with a discussion on the two most common types of Roth IRA conversions: the traditional Roth IRA conversion and the backdoor Roth IRA conversion. The traditional conversion involves converting traditional IRA funds to a Roth IRA, while the backdoor conversion involves making after-tax contributions to a traditional IRA and then immediately converting those funds to a Roth IRA.

While both types of conversions have their benefits, Anderson and Clopine highlight the limitations of the backdoor conversion for high-income earners. The IRS has a pro-rata rule that requires taxpayers to consider all of their traditional IRA funds when calculating the tax liability on a conversion. This means that if a taxpayer has a large balance in their traditional IRA, they will face a significant tax bill when converting to a Roth IRA.

This is where the Mega Backdoor Roth IRA conversion comes in. This conversion allows high-income earners to contribute after-tax funds to a 401(k) or other qualified retirement plan, and then immediately transfer those funds to a Roth IRA. Unlike the backdoor conversion, there is no pro-rata rule to worry about, and the contribution limit for the Mega Backdoor Roth IRA conversion is much higher.

To illustrate the benefits of the Mega Backdoor Roth IRA conversion, Anderson and Clopine provide an example of a high-income earner who makes after-tax contributions of $45,000 to their 401(k) and immediately transfers those funds to a Roth IRA. This conversion would allow the taxpayer to avoid the pro-rata rule and convert a significant amount of funds to a Roth IRA tax-free.

However, as Anderson and Clopine caution, the Mega Backdoor Roth IRA conversion is not for everyone. It requires a high income and a 401(k) plan that allows after-tax contributions, and there are contribution limits to consider. It’s important to consult with a financial advisor to determine if this conversion is right for your situation.

Overall, The Barn Door, Garage Door, Mega Backdoor Roth IRA Conversion – Your Money, Your Wealth® podcast 297 is an informative and engaging discussion on the different types of Roth IRA conversions and how the Mega Backdoor Roth IRA conversion can be a powerful tool for high-income earners. Whether you’re new to Roth IRA conversions or a seasoned pro, this podcast is a valuable resource for anyone looking to maximize their retirement savings.