The Roth IRA has been cherished for years because it’s a great way to enjoy tax-free growth. The money you put into the Roth is taxed already, so there’s no taxes when you pull the money out. However, one thing that stops people from getting into the Roth IRA situation is that they end up making too much money. In the past, this meant that there was really no way that you could tap into a Roth IRA account. However, now there’s a “backdoor” method to getting it done.
You will need to open a nondeductible traditional IRA and then convert it over to a Roth IRA. You get an extra $5,000 each year that will grow in your Roth IRA income-tax free. You can do that every year and you’ll have a really nice retirement fund in the long run.
This is not going to be something for everyone, but if you find yourself at the crossroads of being priced out of the Roth yet still want to add more to your nest egg, this is a really good way to do just that.
With a Roth, you don’t have to take money out if you don’t want to — compare that when a traditional IRA, where you must take taking required mandatory distributions the year after you turn 70 1/2. Those distributions count as income.
With the Roth, you can take money out when you reach a certain age, but it’s all income-tax-free including the earnings that have been growing in the account.
Trying to think of the future can be tricky, but it is definitely important. For example, if you leave a Roth account to any of your children, there won’t be any income tax hit either. That’s better than with the traditional IRA, where there the distributions count as income.
Ideally, you’re going to need to have a blend of different retirement strategies for a golden retirement that you can count on. But this backdoor strategy really might be just what you’re looking for when it’s time to shield some of your income from taxes. Check it out today!