In 2018, a married couple making more than $199,000 cannot contribute to a Roth IRA, but there is a solution, that same married couple can each make a regular (non-deductible) IRA contribution and immediately convert into a Roth IRA.
With only a maximum annual contribution (non-deductible) of $5500 (an extra $1000 for those aged 50 or older), this might not seem to even be worth the hassle, but remember, you can’t make regular contributions to a traditional IRA the year you reach 70½ and older. However, you can still contribute to a Roth IRA regardless of your age. Also at age 70 ½, you will never have to worry about required minimum distributions from your ROTH.
IRA and Roth IRA
• Set up an IRA and a Roth IRA
• Contribute the maximum amount to the IRA and immediately convert to the Roth IRA.
• Consult with your tax professional
For example, if a 50 year old married couple maxed out the backdoor Roth IRA for 10 years, assuming a 6.4% annual return, that’s an extra $200k they will have at the age of 60. Keep in mind that this money will continue to grow tax-free for life.*
*In addition, remember that the pro-rata rule applies, which means that part of the back-door Roth conversion might be taxable if mixed with other traditional IRA funds that were never taxed.
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