How To Strategically Fund Your Roth IRA

Think you don’t have enough funds to contribute to a Roth IRA?

This week, Scott explores several options that might make it possible for you. 

Funding a Roth IRA is a powerful tool that can have a cascading effect in lowering your taxable income, and that is always an advantage. 

Strategy #1: Transfer funds directly from checking or savings. 

This one is simple. If the funds are available, transfer them from checking or savings into the Roth IRA. Contribute up to $7,000 for singles and $14,000 for married couples filing jointly, as long as it does not exceed earned income from work. 

Strategy #2: Transfer funds from a brokerage account. 

If transferring funds from checking or savings would deplete the account or reduce it below your comfort level, you could choose to sell stocks or funds from a taxable brokerage account to move into the Roth. 

The sale of stocks may require you to pay some capital gains tax, but once the funds are contributed to a Roth, you will no longer be paying taxes on the earnings. 

Strategy #3: The Backdoor Roth 

The cap on earnings for contributing to a Roth is $139,000 for singles and $206,000 for married couples filing jointly. The Backdoor Roth IRS loophole rules are more involved and have unique tax requirements, but it can give you the option to contribute to a Roth even if you surpass the maximum income threshold. Using a professional for this transaction is highly recommended! 

To take advantage of this option, begin by contributing to a Nondeductible Traditional IRA. Contrary to a Traditional IRA, there is no tax deduction for the initial contribution; however, you can then convert the funds into a Roth where it can grow and be withdrawn tax-free. 

If you already had a Traditional IRA, the Pro Rata rule applies when converting funds to a Roth IRA and will determine what amount is subject to taxes. This means you will pay tax on the funds that were originally contributed pre-tax, but you will not pay tax on the recently contributed nondeductible portion. Overall, you will still receive some tax advantages and be able to contribute to the Roth. 

Let one of our advisors help you find out if you can be taking advantage of these strategies and repeat the process year after year to build up your Roth IRA for maximum benefit.

If you have any questions, please don’t hesitate to call us at 844-CARLSON (844-227-5766).

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