Hey KD, my 401k plan allows conversions & I’m well under the income limit. I just want to convert my 401k because I believe taxes will be higher in the future so I’d rather have the $$ grow tax free now. I’m 44 & I have way more in my 401k than Roth. Just started contributing to Roth recently.
1. When converting from the traditional to Roth Not only the earnings but also the original should be taxed because it was put there without tax (tax deferred)!
2. You can withdraw the original Roth Contribution tax free and penalty free at any time !!!
Ehhh – this video missed it for me. I have a traditional 401k I contribute to – then I contribute on my own to a IRA through vanguard – then convert the full balance of the IRA to a Roth IRA. This is not a taxable event since I have initially contributed to the IRA with after-tax dollars. The 1099R form will show (x) taxable amount not determined
How does the five-year holding period work if you add funds to the Roth later? Does it re-set the five year clock, or can you still withdraw the original contribution after five years (assuming you're at least 59 1/2 by then)?
What if as a young person who thinks they might end up as a "high income earner" starts contributing more to their traditional so when they get to the high income threshold they can convert to the roth?
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
We've been doing backdoor IRAs since 2020. I wish that we had done so earlier considering our 24% tax bracket goes to 28% in 2026. We've been moving up to the top of the 24% tax bracket, $384,000 on 2024.
After we retire next year, we will remain in the 24% bracket, which goes up the following year.
Individuals need to determine if they will be in a higher or lower tax bracket after retirement. Most people will be in a lower bracket and therefore makes little sense for them to do the conversions.
Between annuities and SS, we'll be receiving about $215k per year going forward. So, we will be in the 24% and 28% brackets for 2025 and 2026 respectively.
By doing backdoor conversions, we can remove another $169k from traditional IRA in 2025 and move to Roth accounts….combined will be near top of 24% tax bracket.
If one is not receiving a pension or annuity payout, they will most likely be in a lower tax bracket afterretirement. Hence, only remove funds up to the top of their current bracket. It makes no sense to pull more funds that will move you into a higher income tax bracket. You want to minimize your taxes.
The absolute best time to move money from a 401k or IRA to a Roth IRA is during a downturn in the stock market. E.g., if your IRA dropped 40%, moving a portion of that money to Roth is ideal. When the market returns with that money, it will all be tax free. We did that in 2020 but did wait too long before making the move. We did make out handsomely though.
What should you do with a 2% IRA deposit bonus that the institution is offering? I know it’s a small amount, but I don’t want to create issues by leaving funds in the IRA account used for Roth conversion.
Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?
So this “might” be the first year that me and my wife will probably be going over the income limit. We currently both have RothIRA’s. What happens to contributions in a RothIRA if the limit is surpassed? Next question: if limit is something we have to worry for 2024 would you recommend investing straight in Trad. IRA and exceeding the BackDoor option? (even though we might not be 100% certain that we will be going over limit). Thanks.
So if I currently have a Roth IRA and I meet the high income limit, I could just keep depositing money because it’s a Roth IRA.?? No need for a back door???
When doing backdoor roth, doesnt the amount you convert get counted as your income and may raise your tax bracket for that year? Also, what happened to the tax deduction you took when you contributed $6k to traditional IRA?
Im going to retire 2024 July @ 60. Is it smarter to contribute traditional 401k 30k for half of the year and only collect small pension the remaining to bring tax bracket down from 24% to hopefully 12% then convert what i can to Roth and pay the smaller tax?
Thank you so much for covering this information in a clear simplistic way. I am 62 and am in the process of planning my retirement. With pensions and social security etc, it can be confusing. Thanks for this great information!
Financially Roth IRAs may not be worth it especially if you are in a very high tax bracket when you want to do the conversion. It actually might be cheaper to just do a traditional IRA and take that money out when you are in a lower bracket – you could pay a lot less tax. Roth IRAs benefit the government more than most Americans because they collect more tax money and they get it today.
Good info Karlton, thank you. Can an Inherited IRA be converted to a Roth IRA through a back-door conversion???
Also, when you make a conversion from a regular IRA to a Roth, do you pay taxes on the entire amount that is converted or just the gains that were realized in the regular IRA
![rewrite this title in 20 words or less (do not provide multiple options): How to Make a Backdoor Roth IRA Conversion [Complete Tutorial]](https://i.ytimg.com/vi/LZ0NePRQWk0/maxresdefault.jpg "rewrite this title in 20 words or less (do not provide multiple options): How to Make a Backdoor Roth IRA Conversion [Complete Tutorial]")
Hey KD, my 401k plan allows conversions & I’m well under the income limit. I just want to convert my 401k because I believe taxes will be higher in the future so I’d rather have the $$ grow tax free now. I’m 44 & I have way more in my 401k than Roth. Just started contributing to Roth recently.
Great video! It explained a lot to me.
Great video. Thanks Karlton!
Two mistakes
1. When converting from the traditional to Roth Not only the earnings but also the original should be taxed because it was put there without tax (tax deferred)!
2. You can withdraw the original Roth Contribution tax free and penalty free at any time !!!
Are the limits based on gross or net income?
Another benefit to roth ira is there is no age where you have to take out money (unlike 401k) so you can meep investing in retirement.
Ehhh – this video missed it for me. I have a traditional 401k I contribute to – then I contribute on my own to a IRA through vanguard – then convert the full balance of the IRA to a Roth IRA. This is not a taxable event since I have initially contributed to the IRA with after-tax dollars. The 1099R form will show (x) taxable amount not determined
How does the five-year holding period work if you add funds to the Roth later? Does it re-set the five year clock, or can you still withdraw the original contribution after five years (assuming you're at least 59 1/2 by then)?
What if as a young person who thinks they might end up as a "high income earner" starts contributing more to their traditional so when they get to the high income threshold they can convert to the roth?
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
Hello Karlton. Thank you for explaining the Backdoor Roth IRA Conversion in a very simplistic fashion. I shared your video with one of my clients.
We've been doing backdoor IRAs since 2020. I wish that we had done so earlier considering our 24% tax bracket goes to 28% in 2026. We've been moving up to the top of the 24% tax bracket, $384,000 on 2024.
After we retire next year, we will remain in the 24% bracket, which goes up the following year.
Individuals need to determine if they will be in a higher or lower tax bracket after retirement. Most people will be in a lower bracket and therefore makes little sense for them to do the conversions.
Between annuities and SS, we'll be receiving about $215k per year going forward. So, we will be in the 24% and 28% brackets for 2025 and 2026 respectively.
By doing backdoor conversions, we can remove another $169k from traditional IRA in 2025 and move to Roth accounts….combined will be near top of 24% tax bracket.
If one is not receiving a pension or annuity payout, they will most likely be in a lower tax bracket afterretirement. Hence, only remove funds up to the top of their current bracket. It makes no sense to pull more funds that will move you into a higher income tax bracket. You want to minimize your taxes.
The absolute best time to move money from a 401k or IRA to a Roth IRA is during a downturn in the stock market. E.g., if your IRA dropped 40%, moving a portion of that money to Roth is ideal. When the market returns with that money, it will all be tax free. We did that in 2020 but did wait too long before making the move. We did make out handsomely though.
please discuss the two 5 year conversion rules
Karlton , this is one of the best explain videos i have come across explaining the Backdoor Roth IRA ,, thank you !!
What should you do with a 2% IRA deposit bonus that the institution is offering? I know it’s a small amount, but I don’t want to create issues by leaving funds in the IRA account used for Roth conversion.
Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?
So this “might” be the first year that me and my wife will probably be going over the income limit. We currently both have RothIRA’s. What happens to contributions in a RothIRA if the limit is surpassed? Next question: if limit is something we have to worry for 2024 would you recommend investing straight in Trad. IRA and exceeding the BackDoor option? (even though we might not be 100% certain that we will be going over limit). Thanks.
Very clear and informative, thanks!
Now, I wish that there was a TurboTax-like tool to see if it is worth while to do a Backdoor Roth conversion.
I'm 67 and never had an IRA of any type. I would like to get a ROTH IRA in 2024 for my later years. Does this make sense?
well said
What about if you fund your traditional IRA with after tax dollars and then convert a day later tobroth ira?
So if I currently have a Roth IRA and I meet the high income limit, I could just keep depositing money because it’s a Roth IRA.?? No need for a back door???
If I currently have a Roth IRA but my wife doesn’t does my Roth IRA qualify as married filing jointly income limit $228,000?
When doing backdoor roth, doesnt the amount you convert get counted as your income and may raise your tax bracket for that year? Also, what happened to the tax deduction you took when you contributed $6k to traditional IRA?
You say complete tutorial in the title but you don't give a single detail on the how except to contact your firm
Thanks for your information! Can you do a video on the BOI report at fincen.gov that companies have to file January 2024?
Im going to retire 2024 July @ 60. Is it smarter to contribute traditional 401k 30k for half of the year and only collect small pension the remaining to bring tax bracket down from 24% to hopefully 12% then convert what i can to Roth and pay the smaller tax?
Is this another way of calling it a Self Directed IRA?
This is a great video. Do you have any on Traditional IRAs?
Thank you so much for covering this information in a clear simplistic way. I am 62 and am in the process of planning my retirement. With pensions and social security etc, it can be confusing. Thanks for this great information!
The best explanation I've listened to about this subject
Financially Roth IRAs may not be worth it especially if you are in a very high tax bracket when you want to do the conversion. It actually might be cheaper to just do a traditional IRA and take that money out when you are in a lower bracket – you could pay a lot less tax. Roth IRAs benefit the government more than most Americans because they collect more tax money and they get it today.
I’m a High Income Earner and I have been using Back Door ROTH IRAs for over a decade
Do you have any tricks for LLC owners who have tons of student loans?
Is it AGI or gross income? As in, if I make $250k as married filing jointly, but $180k AGI, can I still make a Roth IRA contribution?
Good info Karlton, thank you. Can an Inherited IRA be converted to a Roth IRA through a
back-door conversion???
Also, when you make a conversion from a regular IRA to a Roth, do you pay taxes on the entire amount that is converted or just the gains that were realized in the regular IRA
Thank you
I love your tips Karlton.
This is interesting to learn about. Since I could see many people benefiting from this strategy.
The most ridiculous thing is that you put the money into the account, and you pay the early withdrawal penalty.
The reason I prefer to use my money in my investment brokerage account instead of IRA because I don’t want to be restricted.
You can use brokerage account by selling contracts or buying stocks to grown your money too though you pay capital gain tax.
Been trying to set this up made 175k this year