Mark J. Kohler shows high earners how to fund a Roth IRA despite income limits. You can convert a traditional IRA to a Roth anytime before year-end with no income cap, or use the backdoor method: contribute $6,000 to a traditional IRA, then convert it to a Roth. Both strategies let your money grow tax-free.
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I just came in through the back door, just like the backdoor Roth ira. And if you know what the Roth IRA is all about, you know how cool it is compared to the traditional ira. But you want to be in the party. And your accountant may tell you that you make too much money to be at the Roth party. Well, that's what we're going to talk about today is the backdoor Roth IRA and how you can get in and play in the game. All right? Now, why you've heard of this problem is because of income limits, if you make too much money, you cannot contribute to a Roth IRA. It starts around 130 grand if you're single, and if you're married, it starts kicking in at about 190 grand. So, you know, it's awesome. Tax free growth, tax free withdrawals. That's why we want to be in the Roth party. Well, if you try to come in through the front door, we can't get there because we want to get into the Roth, but we're blocked. This front door is closed. So I want to talk about two ways to come in the back door and get into the Roth party. Okay, Option one is a conversion strategy. Pretty straightforward, pretty easy, you probably have heard about it. The second method is more of a two step process. So let's go through the step one option first. Here's the beauty of this. You can take any old IRA, traditional IRA or any old SEP IRA. In fact, inside your 401k at work, your solo 401k in your small business, you can convert traditional 401k contributions to Roth amounts as much as you want, anytime you want before December 31st for that particular year. Now, if it is a 401k conversion to Roth, you have to make sure that the 401k plan allows for that. Call your employer, or if you're a solo 401k owner, you might need to modify it. But the conversion is pretty cool because there is no conversion income limits. You can convert as much as you want any given year. Now the strategy is looking at what bracket you're in and making sure you don't convert too much. To get into a higher bracket, you want to kind of chunk at it. That's a term we use a lot, is that you might say, well, I want to convert some money into Roth. So we're going to do it in pieces and parts and get as much to the Roth party as we can over time by chunking at it. Now, the two step process is really where this backdoor Roth IRA evolved and that is where you make a non deductible contribution. That's step one. You make a non deductible contribution to an Iraq. Now you may say, well, can I do that? Yeah, you can. At any income level. See, if you make more than 130 grand, single, 190 married, you start to phase out and you can't make a contribution to a regular IRA and get a write off, but you can still contribute. But why would you do that? Because on step two you convert it to Roth. So it's kind of a cool way to get into the Roth because you make a non deductible contribution, which you can do even if you make too much money. And then on day two, you convert and you convert that contribution over to a Roth. This year it's $6,000. And if you're over age 50, you can do another $1,000. So you, your spouse, if you're married, make your non deductible contributions to your ira and then on day two, convert it to Roth. Well, my friends, that's how you get into the party. The Roth party is rocking. They're having tax free growth, tax free drinks and food, and then they get tax free treatment on the way out the front door. And that's why you want to be in the Roth party. Study up on it, keep building your Roth accounts and keep living that American dream.
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