Market MakeHer Podcast

25. Q&A: Roth IRA 101, Backdoor Roth IRA Contributions, Lifestyle Creep

Feb 16, 2024
Curious about backdoor Roth IRAs? The hosts break down how they work, income limits, and tax implications. They dive into the IRA aggregation rule, highlighting how all traditional IRAs count as one for conversions. Learn when rolling over a 401(k) could lead to taxes and the strategic benefits of conversions during low tax years. Plus, discover the five-year aging rule for withdrawals and tips for avoiding lifestyle creep while saving for retirement. Practical advice meets insightful discussion in this engaging exploration of retirement accounts!
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ADVICE

Don't Rush A Backdoor Roth Conversion

  • Avoid converting pre-tax IRA assets to a Roth when you have large deductible IRA balances because the pro rata rule taxes most of the conversion.
  • Call your brokerage and a tax advisor to verify whether a backdoor Roth conversion makes sense for your tax bracket and existing IRAs.
INSIGHT

Roth Versus Traditional Tax Mechanics

  • Roth contributions use after-tax dollars and qualified withdrawals are tax-free, while traditional IRA tax deductibility depends on income.
  • The IRS treats all traditional IRAs as one for conversions, so non-deductible and deductible funds mix for tax calculations.
ANECDOTE

Personal Example Of Rolled Over 401(k)s

  • Speaker 0 shares she rolled several old 401(k)s into IRAs and now those balances affect conversion taxes.
  • Her experience highlights how past rollovers can complicate future Roth conversions via the pro rata rule.
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