You work hard each day in your position at Lockheed Martin. You take the time and make the effort to save each month towards retirement. You want to take advantage of the tax-free growth a Roth IRA affords, but unfortunately, you don’t qualify to make contributions to a Roth IRA. So how in the world can you take advantage of a Roth IRA when your earnings have phased you out of contribution eligibility? Here’s your answer.
You make a backdoor Roth IRA contribution. What is that you may ask. It’s a strategy a well-educated financial planner can help you learn and execute for you. Your eligibility for a Roth IRA will hinge on two primary considerations: your adjusted gross income for the year and your income tax filing status. In a given tax year, it’s possible you may qualify to contribute the maximum amount allowed by law, a lesser amount, or nothing at all. The maximum contribution is $6,000. In addition, if you’re age 59½ or older, you can make an extra “catch-up” contribution of $1,000 per year.
A backdoor Roth IRA contribution occurs when a contribution is made to a traditional IRA first. Then the dollars are converted to a Roth IRA. It’s important to note that when you convert a traditional IRA to a Roth IRA, you pay income taxes at your current tax rate, in return for future tax-free withdrawals and no required minimum distribution. Conversions can be done over a period of years or all at once. If you decide to convert your entire traditional IRA all at once, then consider your ability to pay the taxes. Also, you’ll need to note that once the conversion takes place, there is no going back. As of 2019, re-characterizations were halted.
So, is a backdoor Roth IRA contribution or a Roth IRA conversion right for you? Give us a call today at 817-210-3444 or click HERE to book a complimentary consultation with one of our Lockheed Martin specialists who can review your situation and help you answer the question.
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