Mega Backdoor Roth Contributions
A subscriber Request
You have been deep in research for financials and retirement planning. And you are sold on the benefits of Roth retirement accounts. And why not, Roths offer you the benefits of:
Pay taxes now and invest tax-free till you retire
Tax-free withdrawals in retirement
No headaches from Required Minimum Distributions (RMDs) to deal with
Diversify your investments from qualified pre-tax 401k and taxable brokerage
You think taxes will be higher for you in retirement and want to slam as much money into Roth accounts now while taxes are low.
If you aren’t familiar with Roth accounts, stop and read this for a full rundown of the accounts:
Roth IRAs, Something To Do NOW, and a Loophole
Roth IRAs get a lot of love and rightfully so. They allow you to diversify your retirement tax-basis, lock in taxes today, and lower headaches in retirement from an unknown tax liability bomb, political risks on taxes, and RMDs forcing inefficient behaviors.
You are stoked (do people still stay stoked? is it rizzed? cap?…whatever zoomer slang means excited). But then you find out the 2 limits for Roth contributions:
Annual contribution limit of $7,000 per individual (so $14,000 for a married couple who each max out their $7k account amount) is fairly low
Annual income limit of $161k for single and $240k for married filers means if you are over that limit you can’t contribute directly
Oooofff.
Well before you give up, there is work arounds that allow anyone to contribute to Roth accounts through ‘loopholes’. And depending on your available options, you can contribute far more than just $7k per individual.
Two of these are fairly common and I’ll touch on them briefly, but 1 is far less known and we will flesh it out in this post.