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The backdoor Roth IRA is a great way for high-income earners to save for retirement in a tax-advantaged way. It is important to note that the backdoor Roth IRA is not available to everyone. If you have a high income and participate in a retirement plan at work, you may not be able to use the backdoor Roth IRA.
Here are the steps involved in a backdoor Roth IRA:
Open a traditional IRAMake a contribution to the traditional IRA. The contribution limit for 2023 is $6,500 for individuals under age 50 and $7,500 for individuals age 50 or older.Convert the funds from your traditional IRA to a Roth IRA. You can do this at any time during the year, but it is often best to do it at the end of the year, so that you can take advantage of the tax benefits for the current year.When you convert your traditional IRA to a Roth IRA, you will have to pay taxes on the amount of the conversion that is already taxed. However, the earnings on the converted funds will grow tax-free in the Roth IRA.
Here are some of the benefits of a backdoor Roth IRAYou can contribute to a Roth IRA even if your income exceeds the contribution limits.The earnings on your contributions grow tax-free.You can withdraw your contributions and earnings tax-free after age 59 1/2.
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