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Backdoor Roth IRA - is this possible?
Posted on 7/1/17 at 11:11 am
Posted on 7/1/17 at 11:11 am
Going to open a Roth IRA soon and have heard the term back-door thrown around quite a bit. So here's what I'm thinking:
Contribute max to regular IRA (tax deduction), roll all of that over into a Roth IRA (let it grow tax deferred).
Is this a viable strategy to avoid as much taxation as possible? Or is the IRS gonna find a way to frick my mouth no matter what?
Contribute max to regular IRA (tax deduction), roll all of that over into a Roth IRA (let it grow tax deferred).
Is this a viable strategy to avoid as much taxation as possible? Or is the IRS gonna find a way to frick my mouth no matter what?
3
Posted on 7/1/17 at 11:26 am to tigrbabe08
So far it is a viable loophole and with a trump presidency I'd doubt very seriously that it is taken away in the near future.
Just for the record though, you need to be above the income limit for a contribution to a Roth. You will make a contribution to a traditional Ira and not claim the deduction. Then you will do a conversion to the Roth.
You'll have to do a few extra things on your taxes for claiming the cost basis of your contribution so as to not get taxed.
Just for the record though, you need to be above the income limit for a contribution to a Roth. You will make a contribution to a traditional Ira and not claim the deduction. Then you will do a conversion to the Roth.
You'll have to do a few extra things on your taxes for claiming the cost basis of your contribution so as to not get taxed.
Posted on 7/1/17 at 11:31 am to Shepherd88
Awesome, thanks!
I'm an independent contractor with my own LLC, so I'm always looking for ways to avoid that monster tax bill at the end of the year (or quarterly).
I'm an independent contractor with my own LLC, so I'm always looking for ways to avoid that monster tax bill at the end of the year (or quarterly).
Posted on 7/1/17 at 12:31 pm to tigrbabe08
You do realize that upon roll over from traditional to Roth you have to pay taxes, right?
Unless I'm mistaken, the only backdoor present here is the ability to contribute to a Roth even when you have surpassed the income limit.
Unless I'm mistaken, the only backdoor present here is the ability to contribute to a Roth even when you have surpassed the income limit.
This post was edited on 7/1/17 at 12:33 pm
Posted on 7/1/17 at 12:50 pm to tigrbabe08
Look into a Solo 401k.
Posted on 7/1/17 at 12:53 pm to Volvagia
quote:
Backdoor Roth IRA - is this possible? by Volvagia
You do realize that upon roll over from traditional to Roth you have to pay taxes, right?
Unless I'm mistaken, the only backdoor present here is the ability to contribute to a Roth even when you have surpassed the income limit.
I think the whole point of backdooring into the Roth is to double the $5500 annual max contribution.
Posted on 7/1/17 at 1:04 pm to 632627
You can't get a current tax break if you are doing a back door Roth IRA. The best way to do it is contribute to a non deductible standard IRA (so you don't get a current tax break), then transfer it over to a Roth. You can't double dip.
Posted on 7/1/17 at 1:04 pm to 632627
Lots of misconceptions in here it seems.
The "backdoor" part refers to the ability to contribute to a Roth IRA when you are otherwise ineligible.
This is because there's a loophole that allows you to convert the traditional IRA contributions to a Roth.
However, you must still pay taxes on those contributions to the Roth (either by paying them on the tIRA or on the conversion). You may also only contribute $5500 max combined between a Roth and Traditional.
The "backdoor" part refers to the ability to contribute to a Roth IRA when you are otherwise ineligible.
This is because there's a loophole that allows you to convert the traditional IRA contributions to a Roth.
However, you must still pay taxes on those contributions to the Roth (either by paying them on the tIRA or on the conversion). You may also only contribute $5500 max combined between a Roth and Traditional.
Posted on 7/2/17 at 10:08 am to LSUtigerME
quote:
Lots of misconceptions in here it seems
Also be aware that if you have a rollover IRA it has to be included in a conversion which is usually a deal breaker
This post was edited on 7/2/17 at 10:11 am
Posted on 7/2/17 at 11:05 am to tigrbabe08
Make sure you have the money to pay taxes on it.
Ideally, you want to backdoor when you have a dip in income on year. But obviously that's not something most people can time.
Ideally, you want to backdoor when you have a dip in income on year. But obviously that's not something most people can time.
Posted on 7/2/17 at 1:26 pm to castorinho
quote:
Make sure you have the money to pay taxes on it.
Ideally, you want to backdoor when you have a dip in income on year. But obviously that's not something most people can time.
This. I converted in 2010 and spread the income hit over 2011 and 2012. Have about $110k in that account now.
Posted on 7/2/17 at 1:38 pm to tigrbabe08
quote:
Awesome, thanks! I'm an independent contractor with my own LLC, so I'm always looking for ways to avoid that monster tax bill at the end of the year (or quarterly).
Do you have any employees? If not there is a 401k you qualify for. Not sure what it's called but you can put up to 40k/yr in I believe. Can also borrow money from it penalty free as long as you pay back in 3 years or so.
Posted on 7/3/17 at 7:36 am to ItNeverRains
quote:
If not there is a 401k you qualify for. Not sure what it's called but you can put up to 40k/yr in I believe.
Is this available for all LLC's? We both have careers but also have a side LLC, is this an option for parking additional retirement money?
Posted on 7/4/17 at 2:00 pm to ItNeverRains
Posted on 7/7/17 at 8:04 pm to tigrbabe08
The problem with a Roth IRA is that it will limit your contributions… You are also limited to what the volatility of the stock market can provide. I hope you make 10% every year, but I was just not historically likely. This is unconventional, but you need to learn the intricacies of overfunding a dividend paying insurance policy.
1) it lets you contribute more than IRS regulations vs. the Roth IRA and it is not controlled by the government.
The problem with a Roth IRA is that it will limit your contributions… You are also limited to what the volatility of the stock market can provide. I hope you make 10% every year, but I was just not historically likely. This is unconventional, but you need to learn the intricacies of overfunding and dividend paying insurance policy. Number one Dash it lets you contribute more than IRS regulations with the Roth IRA and it is not controlled by the government.
You will net 4 1/2 to 5% after expenses and fees and that money is completely liquid with a properly structured cash value policy that you can utilize to leverage as your own financing for other opportunities – whether that is real estate, business, oil and gas, land, you name it…
Please hear me – there are tons of reps out there with northwestern mutual and many other companies that sell cash value insurance and most of it is crap, because they are not structuring it for immediate growth, liquidity, and control of the money… They structure it for just long-term savings benefits… That is not the best way to structure this type of savings account… Therefore, this gets a bad name and rightfully so.
Lastly, whenever you start taking income from retirement distributions from a Roth IRA – the statistical model (Monte Carlo) says you can only withdraw 4% of the money you invest in Roth IRA without running out of money for the rest your life.
An overfunded dividend paying insurance policy allows you to take 6 to 8% of your income tax free to get more cash flow in retirement… You just have more of a power of compounding interest with insurance and your Money never goes in the negative direction. Just my thoughts and from someone who's doing this personally and teaches this…
Certainly don't make this all of your strategy, but I definitely endorse this from years of study more than a Roth IRA which is also subject to government change down the road…
1) it lets you contribute more than IRS regulations vs. the Roth IRA and it is not controlled by the government.
The problem with a Roth IRA is that it will limit your contributions… You are also limited to what the volatility of the stock market can provide. I hope you make 10% every year, but I was just not historically likely. This is unconventional, but you need to learn the intricacies of overfunding and dividend paying insurance policy. Number one Dash it lets you contribute more than IRS regulations with the Roth IRA and it is not controlled by the government.
You will net 4 1/2 to 5% after expenses and fees and that money is completely liquid with a properly structured cash value policy that you can utilize to leverage as your own financing for other opportunities – whether that is real estate, business, oil and gas, land, you name it…
Please hear me – there are tons of reps out there with northwestern mutual and many other companies that sell cash value insurance and most of it is crap, because they are not structuring it for immediate growth, liquidity, and control of the money… They structure it for just long-term savings benefits… That is not the best way to structure this type of savings account… Therefore, this gets a bad name and rightfully so.
Lastly, whenever you start taking income from retirement distributions from a Roth IRA – the statistical model (Monte Carlo) says you can only withdraw 4% of the money you invest in Roth IRA without running out of money for the rest your life.
An overfunded dividend paying insurance policy allows you to take 6 to 8% of your income tax free to get more cash flow in retirement… You just have more of a power of compounding interest with insurance and your Money never goes in the negative direction. Just my thoughts and from someone who's doing this personally and teaches this…
Certainly don't make this all of your strategy, but I definitely endorse this from years of study more than a Roth IRA which is also subject to government change down the road…
Posted on 7/7/17 at 10:57 pm to Volvagia
Glad people are talking about the solo401k in here. I am just under the Roth contribution limit so technically could contribute, but I am eligible for a solo401k with my side LLC that I park 26k/year in (1000$/pay period) that I deduct on taxes. I have nothing invested in Roth IRA or Roth 401ks. My reasoning is I can really use the tax break now while I am 32 with two young kids as opposed to retirement when my house is paid off and kids are grown. I also pay into a regular traditional 401k at salaried job to get employee match that comes to 9k/year. 35k/year total all in traditionals. Is my thinking flawed?
Posted on 7/8/17 at 10:37 am to Saint5446
I didn't know the solo401k was an option until this thread. I am looking at continuing Roth max, company 401k for match, and doing the solo401k in addition.
What are the intricacies of prematurely pulling money out of the solo?
What are the intricacies of prematurely pulling money out of the solo?
Posted on 7/9/17 at 8:31 pm to Creamer
One huge advantage to the Roth is that it is not subject to a required minimum deduction. This leaves more in the Roth to grow tax free as opposed to having to move the annual RMD to a taxable brokerage account.
If the Trump tax plan is approved, it may provide you with an opportunity to take advantage of lower tax rates. A later change in administrations may bring an increase in tax rates.
If the Trump tax plan is approved, it may provide you with an opportunity to take advantage of lower tax rates. A later change in administrations may bring an increase in tax rates.
This post was edited on 7/9/17 at 8:32 pm
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