Want to know the biggest loophole in the US Tax Code?
This might be it.
If you think you make too much income to contribute to a ROTH IRA, you might be right.
It just doesn’t matter...
There’s another way to get that tax-free goodness.
***Thread***
This might be it.
If you think you make too much income to contribute to a ROTH IRA, you might be right.
It just doesn’t matter...
There’s another way to get that tax-free goodness.
***Thread***
2) A ROTH Conversion
Some people all it a "backdoor ROTH," but let’s not! It sounds wrong and a ROTH conversion is soooo NOT WRONG.
There is no income limit on converting a traditional IRA to a ROTH IRA.
Some people all it a "backdoor ROTH," but let’s not! It sounds wrong and a ROTH conversion is soooo NOT WRONG.
There is no income limit on converting a traditional IRA to a ROTH IRA.
3) There is no income limit to contributing to an a traditional IRA (just a limit on getting a deduction for it).
If you want a ROTH IRA, tax free growth, and no tax on withdrawals at 59.5; but you make too much money, here are three easy steps:
If you want a ROTH IRA, tax free growth, and no tax on withdrawals at 59.5; but you make too much money, here are three easy steps:
4) The steps
Step 1 - Contribute to a traditional IRA - just max it - $6k.
Step 2 - Wait a reasonable period of time (hotly debated).
Step 3 - Convert the investments to a ROTH IRA.
Step 1 - Contribute to a traditional IRA - just max it - $6k.
Step 2 - Wait a reasonable period of time (hotly debated).
Step 3 - Convert the investments to a ROTH IRA.
5) Invest, trade, DRIP, whatever you want and never pay any tax on anything that happens in it or when pulling cash out at 59.5.
Do this as often as once a year with a fresh $6k.
Do it for your spouse, too. That’s $12k per year!
Do this as often as once a year with a fresh $6k.
Do it for your spouse, too. That’s $12k per year!
6) Downsides & Risks:
If you withdrawal funds from a conversion within five years there is a 10% penalty. So don’t do a conversion on any cash you need in the next five years.
If you withdrawal funds from a conversion within five years there is a 10% penalty. So don’t do a conversion on any cash you need in the next five years.
7) Downsides & Risks (Continued)
Other than a 401k, if you have any other tax deferred retirement accounts (other IRAs, etc), converting an IRA, actually triggers tax on a piece of the others if there are built in gains.
Other than a 401k, if you have any other tax deferred retirement accounts (other IRAs, etc), converting an IRA, actually triggers tax on a piece of the others if there are built in gains.
8) Time between IRA contribution and conversion.
None rule says this but there could be a position that your intent was to have a ROTH and your Income is too high, and that you should mash all the steps together and you just made a disqualified ROTH contribution.
None rule says this but there could be a position that your intent was to have a ROTH and your Income is too high, and that you should mash all the steps together and you just made a disqualified ROTH contribution.
9) There’s no formal guidance on this.
MANY reputable CPAs, Tax Attorneys, and Financial planners use this strategy as there is nothing in the law that prohibits it.
I just want you to know the risk is out there, but google around on it. The strategy is widespread.
MANY reputable CPAs, Tax Attorneys, and Financial planners use this strategy as there is nothing in the law that prohibits it.
I just want you to know the risk is out there, but google around on it. The strategy is widespread.
10) If you found this thread useful, give it an RT or a like and let's help others.
Also, there's 60 more quality threads with similar topics that will SAVE YOU TAX in the guide I just put out. Pick it up today before the price goes up and save $1,000s of tax!
Also, there's 60 more quality threads with similar topics that will SAVE YOU TAX in the guide I just put out. Pick it up today before the price goes up and save $1,000s of tax!
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