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39point6 Episode 22 – Backdoor Roth Tutorial – and why do it if high income?

*note – i wasn’t clear on this part: if you’re income is too high to put into Roth IRA directly, your income is also too high to take a deduction on your traditional IRA contribution; thus it must go in “non-deductible.”

(sorry for the lighting issues!)…(read more)

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In the latest episode of the 39.6 podcast, the hosts dive into the world of Backdoor Roth IRA, a strategy that allows high-income earners to contribute to a Roth IRA even if they exceed the income limits.

The hosts start by explaining the difference between a traditional IRA and a Roth IRA, with the former offering tax benefits in the year you make contributions, while the latter offering tax-free withdrawals in retirement.

However, the Roth IRA has income limits, meaning that if your income exceeds a certain threshold, you may not be able to contribute to one. This is where the Backdoor Roth IRA comes into play.

The Backdoor Roth IRA involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. This allows high-income earners to circumvent the income limits on Roth IRA contributions.

The hosts then go through a step-by-step tutorial on how to set up a Backdoor Roth IRA, starting with opening a traditional IRA account, making a non-deductible contribution, and then converting it to a Roth IRA.

They also cover important considerations, such as the pro-rata rule, which can complicate the conversion process if you already have funds in a traditional IRA.

Overall, the Backdoor Roth IRA is a valuable strategy for high-income earners looking to take advantage of the tax benefits of a Roth IRA. The hosts provide clear and concise instructions on how to set it up and navigate potential pitfalls, making this episode a must-listen for anyone looking to optimize their retirement savings strategy.