Tax Tip Tuesday | Backdoor Roth

*this transcript was taken from our Tax Tip Tuesday post on Youtube.  You can watch the video here.

Hey everyone. Welcome to another Tax Tip Tuesday. Today we’re going to be talking about the backdoor Roth. This is a very popular subject for physicians and other high-net worth individuals because face it, you guys make too much to actually make a direct contribution to your Roth.

We’re going to start with a little bit of background. There is traditional IRAs and there are Roth IRAs. And the difference is basically when you pay the tax.

With a traditional IRA, it’s pre-tax, so that means you’re not paying any tax when you put the money into the account and into your IRA account. But when you retire, that’s when you pay the tax at that current tax rate.

With a Roth IRA, you pay the tax when you make the contribution and then it comes out tax free at retirement. So when you are making a certain amount of money, in this case for doing a direct Roth, if you’re making over $193,000 for married filing joint… And this is 2019 numbers by the way. So $193,000 married filing joint, $122,000 for single, and then just $10,000 for married filing separate.

You aren’t able to make a direct Roth IRA contribution. So what does someone in this position do? Well, you can do the backdoor Roth. And what this is, basically what you’re doing is you’re making a non-deductible IRA contribution to your traditional IRA of the $6,000, again, for 2019. And then you are immediately rolling it over to the Roth account. And this is completely legitimate. The IRS allows it, I do it every year on my return. I have pretty much like 99% of my clients that are in this financial bracket do the same thing. It’s a really great way to be putting away extra retirement income above what your employer provides. Or if you’re self-employed, your self-employed retirement account. And basically, that’s basically all you have to do for. It’s really that simple. As long as you have a traditional IRA account open and a Roth IRA account open, you can make that contribution to the traditional IRA and then roll over to the Roth before the April 15th deadline. That’s it. You’re solid, you’re good.

And there are a reporting requirements for doing the backdoor Roth on the Form 8606. If you have any trouble with figuring that out, I will put a great tutorial from White Coat Investor in there that basically walks you through how to report that on your return. But if you still have questions after that, feel free to reach out to me. I’m happy to help. But this is a really good, like I said, a really great way to be putting away more retirement when you’ve all ready maxed out your retirement through your work.

Any questions, let me know. Otherwise, I look forward to speaking to you guys soon. Don’t forget to follow me on social media. So Facebook, LinkedIn, Twitter, and then that way, make sure to be… Oh, also my blog. Don’t forget the blog. And so you’ll be able to make sure to stay up to date on great tips like this, any tax news, also healthcare industry related news as well that I find interesting, and I’d love to hear your comments. Please let me know and I look… [inaudible 00:03:57] if there’s any other Tax Tip Tuesday’s suggestions you’d like to send me, I’m always looking for ideas, so keep them coming and I look forward to talking to you again soon. Okay, bye.