Hi Reader,
🚨 Thinking About a Roth IRA Conversion?
A Roth IRA can be a powerful part of your retirement strategy but getting money into one the right way isn’t always so simple.
➡️ Roth IRAs allow qualified withdrawals to be completely tax-free.
However, high earners often find themselves phased out of contributing directly due to income limits.
Enter the Backdoor Roth IRA. This strategy uses a non-deductible IRA contribution followed by a Roth conversion.
⚠️ However, many get tripped up by the Pro Rata Rule, which can make a seemingly tax-free conversion surprisingly taxable.
Here’s an example:
- You contribute $6,000 after-tax to a non-deductible IRA.
- But you also have $60,000 in a traditional IRA.
- The IRS views ALL your IRAs as one pot.
Now only 9.1% of the conversion is tax-free, and the rest? Taxable.
Before you convert, ask yourself:
🔹 Will this push me into a higher tax bracket?
🔹 Will it affect Medicare premiums?
🔹 Do I understand the 5-year rule?
If you're considering a Roth IRA conversion, proceed with caution.
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David N. Waldrop, CFP®
Owner of Bridgeview Capital Advisors, Inc. a Registered Investment Advisor.
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