Consider a Backdoor Roth IRA

by Lewis A. Weinstein
Founder of GenerationTax


Call or email Lewis Weinstein
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Consider a Roth IRA Conversion During Your Low Income Years

Determine if Your MBA Expenses Are Deductible on Your State Tax Return

Consider Withdrawing Funds From Your IRA–Penalty Free

Consider Recognizing Long- Term Capital Gains in Low Income Years

Claiming The Proper Withholding Allowances

If your income in 2023 was more than $153K ($228K if married), you’re not eligible to make a regular 2023 Roth “contribution”. Your only option therefore is to make a contribution to a non-deductible “traditional IRA”. You could subsequently immediately convert your 2023 traditional IRA contribution to a Roth IRA and pay no taxes on the conversion since your basis (the amount of your contribution) will likely be equal to the amount you converted. It’s a nice little work around that essentially enables you to accomplish your goal of funding a Roth IRA.

How is a Roth IRA different from a Traditional (regular) IRA?

The main difference between the two types of IRAs is when you pay taxes on your investments. Traditional IRAs can delay the taxes until retirement, but with Roth IRAs, you pay tax now rather than later.

Here's how it works: With a Roth IRA, there is no up-front tax break, but you don't have to pay tax on withdrawals in retirement. That's the opposite of a traditional IRA, which may allow you to deduct at least part of your contributions if you qualify, but requires you to pay income tax on money you withdraw in retirement. Both accounts allow investments within them to grow without getting clipped by taxes each year.

There are other differences too. Roth IRAs offer a bit more flexibility than traditional IRAs do. You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason (but you'll be penalized for withdrawing any investment earnings before age 59 ½ unless it's for a qualifying reason). If you withdraw funds from your Roth IRA to pay for your college tuition, course materials and room & board you will not be subject to the 10% penalty. If you converted money from a traditional IRA into a Roth IRA, you can't take it out penalty-free until at least five years after the conversion unless it's for a qualifying reason such as college expenses.

Roth IRAs also let you leave your money untouched for as long as you like. With a traditional IRA, you must start making withdrawals called "required minimum distributions" after you reach age 70 ½. And while you can no longer make contributions to a traditional IRA after you have turned 70 ½, you can keep contributing to a Roth IRA regardless of your age.