Q. How do I do backdoor Roth IRA conversion?
A. Backdoor Roth IRA conversion is quite easy and could be completed in 3 steps.
But first, what is backdoor Roth IRA conversion and why one should do it?
What is Backdoor Roth IRA Conversion?
Backdoor Roth IRA conversion is a tax-smart strategy for people who are not eligible for Roth IRA contribution, but still have money sit aside in taxable account for investing purposes. After the backdoor Roth IRA conversion, the same amount of money will no longer have to pay a single dime of tax anymore!
Why Backdoor Roth IRA Conversion?
There are two reasons one should consider Backdoor Roth IRA Conversion:
1. You are no longer eligible for Roth IRA contribution!
For 2015, the modified AGI phaseout starts at $116,000 for single, $183,000 for married filing jointly. If your income is above those thresholds, you cannot contribute to Roth IRA anymore.
2. You have money on taxable account to invest.
You have at least $5,500 sitting in a taxable account invested in stocks, bonds, mutual funds, etc. of course, any gain out of it, you will have to pay tax year in and year out.
Furthermore, you probably will continue to add money to the account and you will not need such money till you enter into retirement time.
If you meet both above two conditions, the good news is you can backdoor convert that $5,500 into Roth IRA so you will never have to pay tax on any gain again! The bad news is you can only backdoor convert up to $5,500 each year ($6,500 if you are above 50 years old).
And, the backdoor Roth IRA conversion is very simple, just take 3 steps to complete.
A. Backdoor Roth IRA conversion is quite easy and could be completed in 3 steps.
But first, what is backdoor Roth IRA conversion and why one should do it?
What is Backdoor Roth IRA Conversion?
Backdoor Roth IRA conversion is a tax-smart strategy for people who are not eligible for Roth IRA contribution, but still have money sit aside in taxable account for investing purposes. After the backdoor Roth IRA conversion, the same amount of money will no longer have to pay a single dime of tax anymore!
Why Backdoor Roth IRA Conversion?
There are two reasons one should consider Backdoor Roth IRA Conversion:
1. You are no longer eligible for Roth IRA contribution!
For 2015, the modified AGI phaseout starts at $116,000 for single, $183,000 for married filing jointly. If your income is above those thresholds, you cannot contribute to Roth IRA anymore.
2. You have money on taxable account to invest.
You have at least $5,500 sitting in a taxable account invested in stocks, bonds, mutual funds, etc. of course, any gain out of it, you will have to pay tax year in and year out.
Furthermore, you probably will continue to add money to the account and you will not need such money till you enter into retirement time.
If you meet both above two conditions, the good news is you can backdoor convert that $5,500 into Roth IRA so you will never have to pay tax on any gain again! The bad news is you can only backdoor convert up to $5,500 each year ($6,500 if you are above 50 years old).
And, the backdoor Roth IRA conversion is very simple, just take 3 steps to complete.
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