The theme this week is the backdoor Roth IRA strategy. If you make too much money to qualify to make a Roth contribution in 2019, don’t fret. There is a little-known strategy called the backdoor Roth, that will still allow you to make Roth contributions. 

Here’s how it works: You make a non-deductible or after-tax IRA contribution to your Traditional IRA. There aren’t income limits on conversions from a Traditional IRA to a Roth IRA, so you can then turn around and convert that contribution to a Roth. Bam. Done. Take that Uncle Sam!

Today, I’m taking a step back to explain why you want to consider the Roth IRA in the first place. 

The answer lies in the taxes. Every dollar in the Roth is never taxed again, so you could let that grow tax free for the rest of your life or take the money out as income, but whatever you do, the government never gets their hands on it after you retire. 

Tax-free growth and tax-free withdrawals is a beautiful thing! 

And not only that, but Roth IRAs also don’t have mandatory withdrawal requirements when you reach the age of 70 ½. So you could leave the money in the Roth and let it keep growing if you don’t end up needing the money for income in retirement. No forced withdrawals, and no taxes on those forced withdrawals. 

If you’re like 110% of Americans, you would prefer to pay less in taxes, and socking as much into a Roth as you can during your working years will provide more flexibility and a lower tax bill in your retirement years. 

Many people won’t use the Roth to its potential as a retirement savings vehicle, because they are too short-sighted when it comes to their taxes. They would rather get a tax break now by making contributions to their traditional IRA or 401k accounts. But as I’ve talked about a lot here on the One Minute Retirement Tip, you could be leaving a lot of money on the table in the long-run by not socking away more money into your Roth. 

But just go ask any 72 year old you know who has money in their IRA, and ask them how much they love those forced withdrawals every year, how those withdrawals drive their income up, and how much they love paying the taxes on those withdrawals. 

My clients gripe about it all the time, but it’s too late for them now. They can’t go back in time and contribute to their Roth, but if you’re still working, you still have options, so be smart and take advantage of those options. 

Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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