Is your income too high to contribute to a Roth IRA? Don't rule it out yet. By using a backdoor Roth IRA, you can legally get your money into a Roth IRA account each year — no matter how much you make.
? Don't rule it out yet. By using a backdoor Roth IRA, you can legally get your money into a Roth IRA account each year — no matter how much you make. . See how it could fit into your current retirement plan.What is a backdoor Roth IRA, and how does it work? restrict who can directly contribute to Roth IRAs without incurring penalties. However, traditional IRAs don't have any income limits.
You also won't be required to take mandatory withdrawals once you turn 72 . Roth IRAs are often most appealing to those who expect to have a higher tax rate in retirement than they have now. Converting a traditional IRA to a Roth IRA can trigger taxes. With traditional IRAs, you get a tax break upfront and pay taxes when you withdraw the funds. Roth IRAs work the opposite way. Contributions are made with post-tax funds and qualified distributions are tax-free.
A backdoor Roth IRA conversion may not be the best solution when you want to convert a large pre-tax balance. The conversion can bump you up into a higher tax bracket and cause a large tax bill.. If you perform a backdoor Roth IRA conversion on a $50,000 pre-tax balance, you'll owe $17,500 in taxes on the conversion alone. Whether that makes sense for you will depend on if you're prepared to pay that tax bill and the benefits you stand to gain from the conversion in the long run.
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