Want to have better control of your taxes? And keep more of your Social Security benefits in retirement?
If so, Roth conversions could be for you. If you’re a savvy investor, you should take the opportunity to convert much of your hard-earned savings to a Roth IRA.
Luckily, Roth conversions are allowed in 2021, but there are some limits you need to know. Check out our quick guide to find out more.
The Limits of Roth Conversions
The government will only allow you to contribute $6,000 into a Roth IRA for 2021, or $7,000 if you’re 50 or older.
Income limits in 2021 also apply. You cannot contribute to a Roth IRA if your modified adjusted gross income is higher than $140,000 if you’re single. Or, $208,000 if you’re filing as a married couple.
Note that this does not apply to a backdoor Roth IRA conversion.
If you’re within the Roth conversion rules, congrats. It’s time to have better control of your taxes.
If you’re eligible but still undecided, use a Roth conversion calculator. Calculate how much your Roth IRA contributions may be worth at retirement compared to your traditional IRA.
How Do You Do a Roth IRA Conversion?
The simplest way to do a Roth IRA conversion is to:
- Put your money in a traditional IRA account (if you haven’t already)
- Pay taxes on your IRA contributions and gains
- Convert the account to a Roth IRA
If you don’t already have a Roth IRA, you will open one during the rollover.
A Roth IRA rollover works best when:
- Taxes are low
- You have a reduced income
- You have money to pay the taxes that become due
- Anticipate a higher tax rate in the future
With historically low tax rates, now is a great time to convert your traditional IRA to a Roth IRA.
What Is the Backdoor Roth IRA and How Do You Set One Up?
A backdoor Roth IRA conversion is a way for high-income earners to sidestep Roth’s income limits. If you take advantage of the backdoor IRA, you can maximize your retirement savings.
A backdoor Roth IRA may not be the best idea if you will need the money you’re contributing within the next five years.
However, if you think this is an ideal opportunity for you, you’ll need to:
- Contribute to a traditional IRA
- Immediately convert your traditional IRA to a Roth IRA
This must be done to avoid paying any taxes on your earnings that would put you over the contribution limit of $140,000.
Contributing through a backdoor Roth IRA is a more complicated process. But, if you’re out of options this may be the best way to reap the extra tax benefits.
Begin a Roth Conversion Today!
Roth conversions are allowed in 2021, making it the perfect time for you to convert your money into a Roth IRA.
At My Guaranteed Income, we can help you create a tax-free income using select annuities and insurance options. Enjoy the retirement that you deserve. That is our commitment to you.
Get started with My Guaranteed Income today!