BackDoor Roth Conversions
It’s been the talk.
Not so simple.
Some people understand “five year rule”
Most don’t know there are 2 “five year rules”
Rules?! What Rules 🔐
RULE # 1 applies to the earnings in your Roth IRA.
Normally, if you're over 59 ½ years old, you can withdraw these earnings without taxes or penalties. However, there's a condition: your initial contribution to the Roth account must have been made at least five years ago.
Rule # 2 applies specifically to backdoor Roth conversions. When you convert funds from a Traditional IRA to a Roth IRA using the backdoor strategy, it is considered a conversion rather than a direct contribution. This means that you cannot withdraw the converted funds from the Roth IRA without incurring penalties for the first five years after the conversion.
If you engage in an annual backdoor Roth IRA conversion, YOU MUST wait five years before accessing each converted portion without penalties. Failing to comply with this rule may result in additional penalties on money that has already been taxed. However, there are exceptions to this rule. If you are 59 ½ years old or older, or if you become disabled or deceased, you may be exempt from the five-year waiting period.
We understand all of the rules as they are crucial for effectively managing your wealth .
If you’d like some guidance, we can help.
#wealthmanagement #RothIRA #roth #FinancialDecisions #FiveYearRule #backdoor
Board Certified Plastic Surgeon, SIU School of Medicine- Decatur
5moThis seems like a rare problem. Not many retire at 48. Maxing tax deferred accounts seems like something most should prioritize unless they anticipate an atypical situation like this.