“Hey, Joe and Big Al this is Kyle from Georgia. My question is regarding some money that I have from an old employer 401k. So it’s about $200,000 and it’s all pre-tax. And when I left that employer, I moved it to my personal IRA. So my question is twofold. One, I can do Roth conversions on that money? We did it for the first time this year, and we were able to withstand the tax burden and we’re in a high tax bracket and above the income limit to do regular Roth contributions. My other option is to take all that $200,000 and now I have access to my new employers 401k. If I should roll it there? And the reason being is I guess that the 200,000 is now sitting in a pre-tax account in my IRA, I can no longer make backdoor contributions, so no longer can put the 6,000 in and, and do a backdoor. So I’m wondering what you think is best. If I should just leave it there and continue to, I guess, Chunk at it till it’s down to zero in, in all Roth, cuz that’s the goal is to get it to all Roth in our late thirties, as I said, or if I should immediately take all 200,000 put in the new employers plan, that’s my pre-tax account, and then I can start making yearly in Roth contributions. So drive a 2017 Honda pilot and love all things, Georgia craft beer, and really love listening to your show. Thanks for all you guys do.”

Joe and Big al discuss the pro-rata and aggregation rules, the backdoor Roth vs. Roth conversions, and paying the tax on your Roth conversions. Listen to the entire Your Money, Your Wealth® podcast:

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CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period….(read more)

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As Americans save for their retirement, they may come across the terms “Roth Conversion” or “Backdoor Roth Strategy”. These are two strategies that can help individuals maximize their retirement savings and minimize their tax burden.

Roth Conversion, as the name suggests, involves converting a traditional IRA account into a Roth IRA account. A traditional IRA account is funded with pre-tax dollars, meaning the contributions to the account are tax-deductible. However, the money grows tax-deferred, and taxes are paid upon withdrawal during retirement.

On the other hand, a Roth IRA account is funded with after-tax dollars, meaning the contributions are not tax-deductible, but the money grows tax-free and withdrawals during retirement are tax-free as well.

By converting traditional IRA funds to a Roth IRA, individuals can pay taxes on their contributions now, potentially reducing their tax liability during retirement when they withdraw the funds. Additionally, Roth IRA accounts have no required minimum distributions, allowing individuals to leave the funds in the account to continue growing tax-free.

However, individuals need to be aware that the conversion can trigger a significant tax bill in the year it is completed since the entire amount converted is subject to income tax. It’s essential to consult with a financial planner or tax professional before making this decision.

Another strategy that can help maximize retirement savings is the Backdoor Roth Strategy. This strategy involves contributing to a traditional IRA account without taking a tax deduction and then converting those funds to a Roth IRA account. Since the individual did not take a tax deduction when funding the traditional IRA, there is no tax liability when converting to a Roth IRA.

This strategy is particularly useful for individuals whose income exceeds the limit for direct Roth IRA contributions. By using the Backdoor Roth Strategy, individuals can still take advantage of the tax-free growth offered by a Roth IRA account.

It’s important to note that the Backdoor Roth Strategy can be complicated and requires careful planning to avoid any tax liability. Consulting with a financial planner or tax professional is essential before executing this strategy.

Both the Roth Conversion and Backdoor Roth Strategy can help individuals maximize their retirement savings and minimize their tax liability. It’s important to understand the pros and cons of each strategy and work with a professional to determine which strategy is best suited for individual financial goals and circumstances.