tax-advantaged accounts, but whose income is too high
to qualify for standard Roth IRA contributions; and
• Have the time and ability to wait for five years or until
they are 59½, whichever is later, to avoid the 10% penalty
on early withdrawals.
A Backdoor Roth IRA is probably not recommended if you:
• Do not want to contribute more than the maximum
retirement limit through your workplace retirement
account.
• Already have money in a traditional IRA and because of
the Pro Rata rule may end up in a non-tax advantageous
position when converting to a Backdoor Roth IRA.
• Plan or expect to withdraw the funds in the Roth IRA
within the first five years of opening it. A Backdoor Roth
is considered a conversion and not a contribution.
Therefore, the funds may incur a 10% penalty if
withdrawn within five years no matter your age.
• Are in a high tax bracket now and expect to be in a lower
tax bracket in the future.
• Plan to relocate to a lower or no income tax state.
Note: While Backdoor Roth IRAs can be beneficial to
many investors, they are not for everyone. They come
with their limitations and complications. There are
precautions that need to be taken to reap the full benefits
of any financial decision. Please consult and review your
situation with a qualified professional prior to choosing
to use this strategy.
Conclusion
To further discuss funding your retirement plans, or to
schedule a beneficiary review, please call us. This is an area
where a highly informed financial professional can help you
make an educated and calculated decision. As with all tax
sensitive decisions, you should always consult with your
financial and tax professional to help avoid tax
ramifications.
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Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment advisor. Registration as an investment advisor does not imply a certain level of skill of training. Wealth Management
Strategies and PCA are separate, non-affiliated entities. PCA does not provide tax or legal advice.
Source: www.irs.gov. Contents Provided by The Academy of Preferred Financial Advisors, Inc.
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