Roth edition

While you won't get a tax break for your contributions to a Roth IRA, the after-tax money you put in will then grow tax-free and can be withdrawn tax-free once you reach retirement age. How to protect your nest egg from inflation. Although high-income taxpayers are precluded from making deductible contributions to a traditional IRA, they are allowed to make non-deductible ones. In transferring a non-deductible IRA to a Roth, you would owe tax on the gains that had accrued on your contributions.

That's avoidable, however, if you make the conversion immediately after making your non-deductible IRA contribution, since there would be no time for the money to grow.

But this strategy may get the ax. Starting next year, the House-passed bill would prohibit all taxpayers from converting their after-tax contributions using this"backdoor"conversion method to a Roth IRA. No more 'mega backdoor' conversions to a Roth k either. The bill would also prohibit a similar strategy that is currently permitted when it comes to Roth k s. Roth k s are another great way to build tax-free retirement savings and they are now offered by a majority of employers that offer tax-deferred k plans.

On top of that, your employer also may let you make after-tax contributions to your regular k , the gains on which would be taxable when you withdraw them. And you'll have to pay that tax by April 15, While that sounds like double taxation, technically it won't be because the remaining portion of your after-tax contributions will eventually reduce the taxes you pay when you make taxable withdrawals in retirement.

It isn't lost forever," Foss said. And of course, if you're also converting pre-tax IRA savings to a Roth, you will have to pay income tax on those as well. There is one way to avoid the pro-rata rule. Get good advice before acting. The specifics of your situation may be more complex than the examples above. And the IRS rules governing different types of IRAs -- especially Roths -- are very complex, and never more so than when you're moving money from one to another.

This is one of the best ways to get tax-free retirement savings. This is also the case if you're thinking about converting after-tax savings in your qualified retirement plan at work into a Roth k , should your employer offer the option of making voluntary after-tax contributions. The advantage of Roth ks over Roth IRAs is that there are no income eligibility rules and you may contribute much higher amounts annually.

This strategist explains why. Lack of Covid clarity brings volatility to Wall Street. Why this strategist expects inflation to slow down next year. The supply chain crisis isn't slowing down Walmart. Senator Joe Manchin's refusal to vote for the Build Back Better bill puts the future of that legislation in jeopardy. And, as a result, it also puts in jeopardy a revenue-raising provision in the bill that would restrict the ability of high-income savers to put money into Roth IRAs and Roth k s using a backdoor conversion method.

The main advantage of Roths is the ability to invest after-tax contributions that will both grow tax-free and be withdrawn tax-free. It's a good option if you expect to be in a higher tax bracket in retirement or if you want greater flexibility to decide when to tap different pots of money for different purposes in retirement or at any other point.

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