Backdoor and Mega Backdoor ROTHs

This video emphasizes the importance of planning within a Roth retirement account, regardless of an individual’s current tax situation. It highlights the advantage of passing wealth to heirs tax-free through a Roth IRA, as opposed to traditional pre-tax accounts that may force distributions. In a Roth IRA, there are no mandatory distributions, allowing for more control over when to withdraw funds, which can be beneficial for tax planning and avoiding high tax brackets and Medicare surcharges. The video also mentions various ways to fund Roth accounts, including regular contributions, Roth 401(k) contributions, mega backdoor Roths, and Roth conversions for those with lower expected future tax brackets.

Video Transcript

This video describes the importance of planning inside of a Roth environment, regardless of your tax situation today. One of the main concerns our clients have is passing wealth on to their kids in the most tax efficient manner. In a regular pre -tax environment, their kids have to pay taxes and they have to distribute the money quickly over a 10 year period.

When a Roth IRA is passed to kids, it occurs completely tax free without any worries. The most important concept about a Roth IRA is there’s no forced distribution regardless of your age during retirement. This can be so important because the way a pre -tax account works is after the age of 72, the government will force you to take a distribution out regardless of the markets up or down, thereby forcing you to sell it a loss.

In a Roth IRA, you have complete autonomy and control if you take the money. When you take the money, there’s no taxis owed. This really helps clients plan effectively and navigate not only market conditions but also avoid high tax brackets and Medicare surcharges.

The list goes on. As you can tell, we’re very passionate about Roths and we find there’s several ways to fund Roths regardless of your income tax bracket. A regular Roth contribution, if you are allowed to, by the IRS.

The second way is through Roth 401k contributions and the third way is through the mega backdoor Roth. It sounds very complicated. That’s some of the nerdy stuff that we love doing on our team. Reach out to us if you’re interested more. And then the fourth way is evaluating if a Roth conversion makes sense if your tax bracket is lower than it’s expected to be in the future.

Show Full Transcript

Recommended Videos

EWA Principle: Standards Over Feelings
Tips for Staying Calm During a Recession
10 Tips for Maximizing Your Financial Plan in 2023: Tip 7- Tax Bracket Management
Should I Buy or Rent a Second Home?
10 Mistakes That Retirees Make and How to Avoid Them: Tip 1-Underspending
Why We Disagree with the FIRE Movement