10 Tips for Maximizing Your Financial Plan in 2023: Tip 2- Roth IRAs

Tip number two for maximizing your financial plan in 2023, as suggested by Matt Blocki, is to make the most of your Roth IRA contributions. In 2022, the maximum contribution for those under 50 was $6,000, but in 2023, it’s increased to $6,500. If you’re 50 or older, you can still contribute an extra $1,000 as a catch-up.

However, remember that income limits apply. If your household income is below $218,000 in 2023, both you and your spouse can directly contribute to a Roth IRA. If your income falls between $218,000 and $228,000, your contribution limit may be reduced, and if it’s above $228,000, you might not be eligible for direct contributions.

Fortunately, there’s a strategy called the backdoor Roth IRA. This allows you to contribute to a traditional IRA, regardless of income, and then convert it to a Roth IRA. This approach can help you work around income limitations and contribute to a Roth IRA, although be cautious of aggregation issues if you have pre-tax IRA funds.

Video Transcript

Hello, Matt Blocki with EWA. Today we are talking through ten tips for 2023 and how to maximize your financial plan. Tip number two for maximizing your plan in 2023 is maximize your Roth IRA. So in 2022, the maximum that you put into a Roth IRA was $6,000.

If you’re under the age of 50, that has gone up to $6,500. So pretty significant increase would definitely make a big difference in the long term. What did not change is the catch up contribution. So if you’re over the age of 50, the additional you can put in is still $1,000.

In 2022, it was 6000 or over 57,000. In 2023, it’s 6500 or over 57,500. Many ways to get money into a Roth environment, and this video specifically, tip number one was around 401 KS and inside of a 401K.

You can do a Roth 401K in the 402 G or a mega backdoor Roth in the after tax component. We can also convert into a Roth by paying taxes on something that’s already pre taxed. But this tip number two is just talking about the good old fashioned contribution into Roth IRA.

That’s the limit that can go in per year. And one thing to note is that the limits for income actually went up as well. So if you make below $218,000 as a household in 2023, you and your spouse can directly contribute into a Roth IRA.

If you make above 218, you start getting phased out. And once you’re above 228, you’re completely out, meaning you can no longer contribute into a Roth Irate directly. If you’re right in the middle here at 223,000, that means you can contribute half of.

The maximum into the Roth IRA, you could contribute $3,250. So again, below 218, the full amount, halfway in between there you contribute half the amount. If you’re above 228, you contribute zero. Now, the exception to this is if we do what’s called a backdoor Roth IRA and a backdoor Roth IRA simply means that we don’t have to worry about income limit limitations anymore because anyone can contribute into a traditional IRA.

Now, tip number three, we’re going to talk about contributing to a traditional IRA, whether it’s a deduction or not. But you could be making $1 or a million dollars. Everyone’s eligible contribute to a traditional IRA.

The same contribution limits apply. The question is do you get a tax deduction and in the backdoor roth we don’t want to take a tax deduction. It’ll be an after tax contribution to a traditional IRA.

And then, assuming that you have no aggregation, the 6500 contribution in 2023, the next day, we would convert that to a Roth IRA, fill out form 86 on our tax return. And assuming there was no growth in that, one day turnaround, there’d be no tax when we go from the traditional to the Roth IRA.

Some extra tax reporting, but a way that we can get around those income limitations and end up getting your contribution to the Roth IRA. We did a separate video which will reference five things to know about a backdoor Roth IRA.

There’s aggregation issues, so we have to be careful. If you have an existing balance in a traditional IRA that’s pre tax, there’s aggregation when we pull that money over. So this examples assuming that you have no pretax IRA money, everything’s been rolled to a pretax 401K which operates in a totally separate universe and which would enable you to do a clean backdoor roth so something we’d recommend everyone that’s actively working to contribute.

The Roth IRA. Important to note, if you are retired and just have passive income, you cannot contribute to Roth IRA. You have to have active income to contribute to the Roth. If you have a child under the age of 18, they have to earn 6500 to be able to contribute 6500.

You can’t just gift them money directly into Roth. They have to have the earned income on their tax return to then show it. If you run a business, we can show you ways to avoid federal tax. On the first, it’s above 12,000.

You can pay your child tax free. So if they’re able to do some duties inside your business, we can not only save taxes by paying them that money, but we can direct that money to the Roth IRA to help them start planning for the future at a very young age.

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Playlist

10 Tips for Maximizing Your Financial Plan in 2023

10 Tips for Maximizing Your Financial Plan in 2023: Tip 1- 401ks and 403bs
10 Tips for Maximizing Your Financial Plan in 2023: Tip 4- Allowable Income for 401k and 403b
10 Tips for Maximizing Your Financial Plan in 2023: Tip 3- Traditional IRA Planning
10 Tips for Maximizing Your Financial Plan in 2023: Tip 5- Social Security Tax
10 Tips for Maximizing Your Financial Plan in 2023: Tip 6- HSA's
10 Tips for Maximizing Your Financial Plan in 2023: Tip 7- Tax Bracket Management
10 Tips for Maximizing Your Financial Plan in 2023: Tip 8- Estate Planning
10 Tips for Maximizing Your Financial Plan in 2023: Tip 9- 529 Plans
10 Tips for Maximizing Your Financial Plan in 2023: Tip 10-Standard Deduction

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