Cary Stamp, leading financial advisor based in Jupiter, FL, offers a quick description of the Back Door Roth IRA strategy, which is the method for contributing to a Roth IRA even if you earn too much income.
I’m Cary Stamp and this is a Principled Wealth Moment, and today I’m going to explain to you how you can make a Roth IRA even if you make too much money to make a Roth IRA contribution. It’s really simple.
We use a strategy called the Back Door IRA. So everyone in this country is eligible to make a traditional IRA contribution if you’re under age 70-1/2, and you have earned income. If you qualify in those characteristics, then even if you have a retirement plan at your current business, you can make a traditional IRA contribution. The key is that you may not be able to deduct this IRA contribution, and if you want to do the strategy that we’re describing, you won’t want to deduct it anyway. So here’s what you do. We first establish a traditional IRA account for you. The traditional IRA account can have a contribution. That contribution, if you’re under age 50, can be $6,000, and if you’re over age 50 you can contribute $7,000 to your traditional IRA. As soon as this account is established, we then convert the traditional IRA to a Roth IRA. And if you have no other IRA accounts in existence, this is a completely tax-free zero tax transaction. If you have some other IRA accounts, we have another strategy so that you can make this a tax free transaction, but you’re going to have to ask us about it.
Here are some other numbers that you need to know. If you are not eligible to make a Roth IRA contribution, you would be a single person who makes more than $122,000, or a married couple who makes more than $193,000 in a year. If you fit into this category and you want to save some tax free money for retirement, this Roth Back Door Conversion strategy could be fantastic for you.
I’m Cary Stamp and this has been a Principled Wealth Moment.