Скачать или смотреть How the Pro Rata Rule Can Cost You Additional Taxes on Your Backdoor Roth Conversion

Backdoor Roth contributions are a common strategy we use with high-income professionals who exceed the annual income limits to contribute directly to Roth accounts. Using a backdoor Roth strategy allows them to get extra savings into Roth for tax-free compounded growth for life.

Unfortunately, when super-savers come to us after attempting a Backdoor Roth contribution on their own, a common mistake arises time and time again – forgetting to fully clean out an IRA of all pre-tax dollars before executing the strategy. Why is this important? A critical statute known as the pro-rata rule can cause you to pay more taxes than necessary on the Backdoor Roth strategy if you aren't meticulous about every step along the way.

What is the Pro-Rata Rule for a Backdoor Roth?

For the Roth Conversion step when performing a Backdoor Roth contribution, the pro-rata rule says that all IRAs are treated as one IRA. This means that any funds converted to Roth will be taxed proportionally according to the amount of pre-tax and non-deductible funds subject to the conversion, incurring the risk of double taxation. Learn more here: https://hubs.ly/Q022kRJv0

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Video highlights:
00:00 Intro
00:19 - How Does the Backdoor Roth Strategy Work?
01:10 - The Most Common Mistake
02:42 - How do we fix this mistake?

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5847 San Felipe St., #1500
Houston, TX 77057
713.439.1200
[email protected]

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Disclosures:
Willis Johnson & Associates is a registered investment advisor. The information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Corporate benefits may change at any point in time. Be sure to consult with human resources and review Summary Plan Description(s) before implementing any strategy discussed herein. Willis Johnson & Associates is not a CPA firm.