July 1, 2019
Roth IRAs are a robust way to save for retirement. You pay taxes up front on a Roth IRA — but after enrollment, all growth and withdrawals are tax-free.
For those with higher income levels, traditional IRAs are usually the favored investment because Roth IRA contributions have an income cap.
In 2019, if your modified adjusted gross income (MAGI) is $137,000 (single) or $203,000 (married filing jointly or qualifying widow[er]), you may not contribute to a Roth IRA.
So how can you utilize a Roth IRA if you’re in a higher income bracket?
There is a backdoor method to opening a Roth. You can open a traditional IRA, and then roll the money into a Roth (once per year).
Anyone can convert money from a traditional IRA to a Roth IRA, no matter your earned income level. You can also roll an unlimited sum from an existing traditional IRA into a Roth IRA.
We aren’t trying to trick the IRS — this conversion is legal. You must still pay taxes on any money in your traditional IRA that hasn’t already been taxed.
There are a few implications to be aware of if you’re considering a backdoor Roth conversion.
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Since the Tax Cuts and Jobs Act (TCJA) passed into law, the deduction for personal exemptions is suspended for tax years 2018 through 2025.
Although the exemption dollar amount is zero, eligibility to claim an exemption may make you eligible for other tax benefits.
If you have retirement on your mind, the big question is this: Are you in a financial position to do so? While nothing replaces the advice of a seasoned advisor, you can take your first step to answering this question by applying a simple 5-step calculation.
It could be that QuickBooks is still the best choice for you. It’s an excellent product and many owners use it successfully.
But it’s definitely worth a conversation with your accountant. Ask what other solutions on the market might better align with your business structure.