Simple backdoor Roth explanation and use case
Oct 25, 2020
3 Comments
Have read about this and chatted about this many times but the conversation and insights never stick.
Anyone mind providing a primer to and benefits of Backdoor Roth? Clear use cases would be helpful here. #personalfinance #investments
comments
Any gains or dividends in a roth IRA are tax free. That's the biggest benefit. Also, any contributions you make in a roth IRA can be withdrawn whenever you want unlike a traditional IRA. You'll have to wait for 5 years to withdraw the gains though I'll suggest not to withdraw anything from it for decades. So if you have the money you,
- max out the 6k limit in the Roth IRA
- if you're above the income limit(it's a range, look it up) to contribute directly to a roth IRA, you contribute 6k to traditional IRA and transfer that to a roth IRA.
If you're doing option 2, you need to make sure you don't have any pre tax money in any of your traditional IRAs. Else you'll be subject to taxes while making that conversion from traditional to roth IRA.