This is great content. My only bit of constructive criticism is the videos are a bit long for the amount of content being delivered. I think that’s mostly because you repeat things a lot. As a former educator I learned there’s a difference between teaching through live lectures and teaching an online course through, say, video lectures. With video the student has the ability to pause, rewind, rewatch, slow down, speed up, etc. So my video lectures are more concise and I include more visuals and detail. Just some friendly advice as I would love to see your content reach a much broader audience. I’m actually shocked by how low your subs are given the quality of the subject matter.
I am new to understanding how Roth IRA’s work so appreciate your thorough video! Do I need to be concerned how much I transfer in single year increasing my overall tax rate when added to my yearly income?
Thank you for watching! That is a good question. When you do the rollover, the amount you convert into the Roth-IRA is going to increase your taxable income. Therefore, you want to watch out for the fact that you could be kicked into a higher tax bracket and that you cannot take any money from the account to pay the tax due. So if you rollover $100k for example, you have to have other sources of cash to pay the tax on that $100k. You cannot take a distribution from the plan.
Great video. I plan to visit your other videos as well. I'm not sure if I missed something, but if I wanted to "go big", could I set up a new Roth IRA account and contribute 100% of each of my existing Traditional IRA, Roth IRA, and Rollover IRA accounts into this new Roth IRA account as long as I have adequate separate resources to pay the income tax on the Traditional IRA account? Assuming I am over 59 1/2 but not yet 70 (so no early withdrawal penalty or RMD to be of concern) and have no other (material) taxable income, as long as my resources are sufficient to cover the tax liability on the before tax account(s), I could make the entire change in one year and not have to worry about the pending change in income tax rates. Seems too easy.
To bounce off @cj2695 comment / question. By conducting a backdoor Roth [in manageable chunks], are we still allowed to contribute post-tax income to that ROTH in the same annual period?
Do you have a recommendation for tax filing and payroll services in WY? I saw that you recommend Garret Sutton for entity setup but they do not provide payroll or tax planning/filing to maximize Roth contribution....thanks!
Decent content, however the "do it yourself" mantra is not a prudent recommended strategy especially when dealing with complicated issues such as these.
Appreciate the info. I rolled over a pension from my previous employer back in 2021 of 80k to traditional ira. I never contributed to the ira just rolled over and started investing it. I do not have any other iras or have contributed to any iras. I just have a roth that i contribute the max to every year. Would it trigger the pro rata rule if i started to chunk this year into my roth. Hopefully i explained this correctly
Great question - if you are trying to make non-deductible contributions to an IRA and then do a backdoor conversion to a Roth, the pro rata rules would likely be triggered if you have other traditional IRA accounts. You have to take all retirement accounts into consideration when you are doing the backdoor conversion with non-deductible contributions.
Thank you for replying. So to be clear. I never had another ira or contributed to my rollover ira and never took a tax deduction for the money rolled over into the ira. I wouldn't be subjected to the pro rata rule?
@@carlrobinson3835 if the funds came from a traditional 401k, then you already received the benefit of investing pretax dollars. This makes conversion trigger pro rata on this pile of money, I believe
What are the chances of new laws being implemented to begin taxing Roth accounts? Its not unfathomable, right? We could get screwed on taxes from both ends!
Most in industry think it is highly unlikely any laws would tax distributions from Roth accounts (at least not laws that would be applicable to anyone who isn't uber-wealthy and would be losing any sleep over it).
I think it’s highly unlikely, too. If they did this my guess is it would destroy the program. Why would anyone invest this way when you could just use your own brokerage account and not be hamstrung by the rules of a Roth?
I will soon be 60, and single and under income bracket to do the rollover. I will have to pay taxes on the money that I transfer to the roth account still?
Yes - the money you roll over is going to increase your taxable income and will likely kick you into a higher tax bracket. The ultimate tax due would depend on the amount that you are rolling over. Hope this helps!
Question. Since you said the distributions count as ordinary income, could you shield the contributions with the Foreign Earned Income Tax deduction? Like if you're living overseas and doing these conversions?
That is a fantastic question! You cannot use the Foreign Earned Income Exclusion to reduce/exclude the taxable income from doing the backdoor Roth-IRA conversion. However, there is a common planning strategy used by U.S. citizens working abroad around this. If your total wages are below the threshold of the Foreign Earned Income Exclusion (meaning you can exclude 100% of your income from U.S. tax using the exclusion), a common strategy is to do a backdoor Roth-IRA conversion up to the standard deduction amount. This can allow you to get almost $14k (if single filer) tax-free into a Roth-IRA.
Painful. Tax on this for me with all IRA/401k would be 7 figures (live in Cali...>50% composite marginal tax rate) for me, so I haven't done it. I know it's irrational to not do it but need to get it in motion.
You definitely aren't the only one having this issue! I know many who are spreading it out over a few years to make the tax bill a little bit easier to stomach.
You don't sell and rebuy stocks inside the account when you do the conversion from 401k to a Roth. You just rollover everything inside the account into a different account. However, you are paying tax on the amount rolled over because you are rolling over pre-tax dollars to a post-tax account.
I have a 403B from my previous job thats roth amd a reuglar 503B that i wanna roll over to my roth IRA, do i need to open a completely new roth IRA account to do this? Also can I just open a separate IRA acount to transfer the regular 403B account and then convert it to roth IRA?
There are always a lot more restrictions that apply with 403(b) plans and you also have to check any potential restrictions/limitations with the plan document itself. In my experience, you can usually just get everything into the same Roth account. You may need to use a traditional IRA in the middle somewhere in some cases with 403(b) plans.
If I have already made that 60k+. Through mega back door in 2023 , can I use my old 401k(35k+) amount to be transferred to the same Roth IRA in the same year ?
The limitations are on how much goes into the plans themselves. There typically are not limitations on the amount you convert through the backdoor Roth-IRA conversion. Just make sure you have the liquidity to pay the tax bill outside of funds inside those accounts.
Generally, you can't do a rollover with a 403(b) plan unless you are over 59.5 years old or cease working for the employer sponsoring the plan unless the plan allows for in service rollovers (which is uncommon).
You explain everything very clear. Thank you
Great video, covers important stuff like needing cash to cover tax bill exclusive of roll over funds!!!
Thank you for watching!
This is great content. My only bit of constructive criticism is the videos are a bit long for the amount of content being delivered. I think that’s mostly because you repeat things a lot. As a former educator I learned there’s a difference between teaching through live lectures and teaching an online course through, say, video lectures. With video the student has the ability to pause, rewind, rewatch, slow down, speed up, etc. So my video lectures are more concise and I include more visuals and detail. Just some friendly advice as I would love to see your content reach a much broader audience. I’m actually shocked by how low your subs are given the quality of the subject matter.
I am new to understanding how Roth IRA’s work so appreciate your thorough video! Do I need to be concerned how much I transfer in single year increasing my overall tax rate when added to my yearly income?
Thank you for watching! That is a good question. When you do the rollover, the amount you convert into the Roth-IRA is going to increase your taxable income. Therefore, you want to watch out for the fact that you could be kicked into a higher tax bracket and that you cannot take any money from the account to pay the tax due. So if you rollover $100k for example, you have to have other sources of cash to pay the tax on that $100k. You cannot take a distribution from the plan.
Great video. I plan to visit your other videos as well. I'm not sure if I missed something, but if I wanted to "go big", could I set up a new Roth IRA account and contribute 100% of each of my existing Traditional IRA, Roth IRA, and Rollover IRA accounts into this new Roth IRA account as long as I have adequate separate resources to pay the income tax on the Traditional IRA account? Assuming I am over 59 1/2 but not yet 70 (so no early withdrawal penalty or RMD to be of concern) and have no other (material) taxable income, as long as my resources are sufficient to cover the tax liability on the before tax account(s), I could make the entire change in one year and not have to worry about the pending change in income tax rates. Seems too easy.
Are there limits to the annual amount that you can transfer via back door method (other than having the cash to pay the tax)?
No limits. You can roll over the full amount in your retirement plans.
To bounce off @cj2695 comment / question. By conducting a backdoor Roth [in manageable chunks], are we still allowed to contribute post-tax income to that ROTH in the same annual period?
How do we know the rollover limits? And is the limit per target Roth IRA account, or just a single total limit per year?
Do you have a recommendation for tax filing and payroll services in WY? I saw that you recommend Garret Sutton for entity setup but they do not provide payroll or tax planning/filing to maximize Roth contribution....thanks!
Decent content, however the "do it yourself" mantra is not a prudent recommended strategy especially when dealing with complicated issues such as these.
Appreciate the info. I rolled over a pension from my previous employer back in 2021 of 80k to traditional ira. I never contributed to the ira just rolled over and started investing it. I do not have any other iras or have contributed to any iras. I just have a roth that i contribute the max to every year. Would it trigger the pro rata rule if i started to chunk this year into my roth. Hopefully i explained this correctly
Great question - if you are trying to make non-deductible contributions to an IRA and then do a backdoor conversion to a Roth, the pro rata rules would likely be triggered if you have other traditional IRA accounts. You have to take all retirement accounts into consideration when you are doing the backdoor conversion with non-deductible contributions.
Thank you for replying. So to be clear. I never had another ira or contributed to my rollover ira and never took a tax deduction for the money rolled over into the ira. I wouldn't be subjected to the pro rata rule?
@@carlrobinson3835 if the funds came from a traditional 401k, then you already received the benefit of investing pretax dollars. This makes conversion trigger pro rata on this pile of money, I believe
What are the chances of new laws being implemented to begin taxing Roth accounts? Its not unfathomable, right? We could get screwed on taxes from both ends!
Most in industry think it is highly unlikely any laws would tax distributions from Roth accounts (at least not laws that would be applicable to anyone who isn't uber-wealthy and would be losing any sleep over it).
I think it’s highly unlikely, too. If they did this my guess is it would destroy the program. Why would anyone invest this way when you could just use your own brokerage account and not be hamstrung by the rules of a Roth?
I will soon be 60, and single and under income bracket to do the rollover. I will have to pay taxes on the money that I transfer to the roth account still?
Yes - the money you roll over is going to increase your taxable income and will likely kick you into a higher tax bracket. The ultimate tax due would depend on the amount that you are rolling over. Hope this helps!
Question. Since you said the distributions count as ordinary income, could you shield the contributions with the Foreign Earned Income Tax deduction? Like if you're living overseas and doing these conversions?
It would be pretty nuts if you could convert 120k/year tax free.
That is a fantastic question! You cannot use the Foreign Earned Income Exclusion to reduce/exclude the taxable income from doing the backdoor Roth-IRA conversion. However, there is a common planning strategy used by U.S. citizens working abroad around this. If your total wages are below the threshold of the Foreign Earned Income Exclusion (meaning you can exclude 100% of your income from U.S. tax using the exclusion), a common strategy is to do a backdoor Roth-IRA conversion up to the standard deduction amount. This can allow you to get almost $14k (if single filer) tax-free into a Roth-IRA.
Painful. Tax on this for me with all IRA/401k would be 7 figures (live in Cali...>50% composite marginal tax rate) for me, so I haven't done it. I know it's irrational to not do it but need to get it in motion.
You definitely aren't the only one having this issue! I know many who are spreading it out over a few years to make the tax bill a little bit easier to stomach.
Is transferring stocks from a 401k to a Roth ira involve selling and rebuying? Is it a taxable event?
You don't sell and rebuy stocks inside the account when you do the conversion from 401k to a Roth. You just rollover everything inside the account into a different account. However, you are paying tax on the amount rolled over because you are rolling over pre-tax dollars to a post-tax account.
I have a 403B from my previous job thats roth amd a reuglar 503B that i wanna roll over to my roth IRA, do i need to open a completely new roth IRA account to do this? Also can I just open a separate IRA acount to transfer the regular 403B account and then convert it to roth IRA?
There are always a lot more restrictions that apply with 403(b) plans and you also have to check any potential restrictions/limitations with the plan document itself. In my experience, you can usually just get everything into the same Roth account. You may need to use a traditional IRA in the middle somewhere in some cases with 403(b) plans.
If I have already made that 60k+. Through mega back door in 2023 , can I use my old 401k(35k+) amount to be transferred to the same Roth IRA in the same year ?
There’s no limit right ? that 67k total for 2023 doesn’t apply to megaback door Roth IRA
The limitations are on how much goes into the plans themselves. There typically are not limitations on the amount you convert through the backdoor Roth-IRA conversion. Just make sure you have the liquidity to pay the tax bill outside of funds inside those accounts.
What about a 403B?
Generally, you can't do a rollover with a 403(b) plan unless you are over 59.5 years old or cease working for the employer sponsoring the plan unless the plan allows for in service rollovers (which is uncommon).
@@sharonwinsmith Thank you. I plan to retire from that employer in 2 years. Maybe then…
Best of luck!
@@sharonwinsmith I appreciate the reply. We will see what turn this crazy market takes. Either way I will continue to invest! It’s so vital.