For those who can no longer fund a Roth IRA directly, there are still several ways to get dollars into a Roth environment. From Roth 401(k) contributions and backdoor Roths to Roth conversions in retirement, there are several options to consider.
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Austin, we have a lot of clients that used to fund Roth IRAs, but now they can’t. Are there any other ways to get dollars into a Roth environment if you’re in that situation?
Of course. The first thing that someone could do is they could look at how they’re currently deferring into their 401k plan and switch some of their pre-tax contributions to Roth, albeit you’re giving up that tax deduction today. Another common thing that we see clients doing is the backdoor Roth.
However, that’s becoming increasingly harder to get accomplished because of how frequently people change jobs, which oftentimes leads into them setting up rollover IRAs. Another thing to remember is that for those of us over age 50, when we make up those catch-up contributions, that is actually done with after-tax dollars. But what we think is a really unique opportunity in the marketplace right now is our clients that have access to what’s known as an after-tax feature in their 401k. It’s commonly referred to as the mega backdoor Roth, and that’s where we have some clients that are in a position where they can get 30, 40 thousand dollars a year into their Roth IRA.
But ultimately the other place where you can look at getting money into a Roth is as you near retirement and typically in the first five to ten years of retirement where your income rate drops, you can take advantage of moving dollars from your IRA to a Roth, but you want to make sure you have a non-qualified account in order to help offset that tax.
So, there are more than a few options to take advantage of the tax treatment of Roth dollars.
Without a doubt.