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Can the Back Door Roth Contribution - come in the front door?

Darryl Rosen • Sep 07, 2022

The Back Door Roth Contribution is forever on the chopping block - but never chopped

You may have heard this term - back door Roth contribution

Well, every once in a while (the back door Roth contribution) seems to be on the chopping block…

Congress throws a bunch of retirement-related rule changes against the wall to see what sticks. Often, this workaround for affluent people (who can’t make a Roth contribution because of their wages) is mentioned…

…but so far it has been spared and just doesn’t seem to be on anybody’s radar.

Let’s dig deeper on this.

If you are single and your Modified Adjusted Gross Income is over 144K or you are married and your combined MAGI is over 214K - you are precluded from making a Roth contribution.

Enter the back door Roth contribution - but through the front door.

Here are the steps.

1st - make a non-deductible IRA contribution.

You may remember that when you make a regular IRA contribution - you take a deduction on your tax return.

No deduction this time.

2nd - Process a Roth conversion.

Here’s the key - do this before you invest the money. This way there will be no gains. Investment gains make the issue a bit thornier.

Put 6K in the IRA and immediately convert that amount to your Roth account.

Presto - You’ve moved 6K to the tax-free Roth environment.

By the way, if you are over 50 years of age - you can do 7K. That’s known as the “catch up” provision.

Here’s what I want you to keep in mind.

You should File Form 8606 every year you contribute after-tax amounts to a traditional IRA.

Per investopedia:

If a taxpayer does not claim a deduction of their traditional IRA contribution, it is usually because they either are not eligible or simply prefer not to do so. An individual who is eligible for the deduction may decide not to claim it so that their future distributions of the amount are tax- and penalty-free. Regardless of the reason, the taxpayer must file Form 8606 to notify the IRS that the contribution is nondeductible (counting as after-tax assets). To report the after-tax contribution, the individual must complete Part l of Form 8606.

Most tax software will handle this for you but at least you’ll know what to look for.

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When a Spouse Dies

By Darryl Rosen • 19 Mar, 2024

When your spouse dies. 63% of the time when a spouse dies, it’s the man. According to the NIH, when this happens, on average the widow (or the wife) lives another 12 years. 3 things happen in short order when someone dies. Income decreases by as much as 50% with the possible loss of social security and pension. Taxes increase the following year because single tax rates are more punishing than married rates. If the deceased had an IRA or 401K, the widow still has to take Required min distributions but now at higher tax rates. Expenses go down but not by as much as you think. Only 20% on average per the Government Accountability Office. Think about it this way. Variable costs like medical and food, etc. will decrease but what about fixed expenses. My FIL passed in December. Jill’s Mom still has the house to contend with. All of this is to say please build these types of scenarios into your plans. If you have questions, feel free schedule some time to speak with me.

Annuities Simplified: What you need to know before buying!

By Darryl Rosen • 07 Mar, 2024

Are you looking for a reliable source of income in retirement? Annuities may be the answer! Watch this video to learn how annuities can provide guaranteed income and simplify your retirement plan. Say goodbye to financial worry and hello to a comfortable retirement!

Overcoming Financial Blunders

By Darryl Rosen • 02 Mar, 2024

Are past financial slip-ups haunting your investment decisions? You're not alone. In this insightful video, @erinkennedytv and Darryl delve into expert advice on navigating investment and financial choices after making mistakes. From acknowledging past blunders to crafting a brighter financial future, discover actionable strategies to thrive in your retirement journey.

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Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and Rose Advisory Group are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. The content of this website is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. Investments and/or investment strategies involve risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a monthly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation. Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by BCM. Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract.