IRA and Roth IRA Optimization

I paid an extra $96,000 in taxes in 2023. Yet it will save me hundreds of thousands in future taxes. What I did and the lesson you can learn from it: My goal with taxes is simple ~ pay the lowest amount over my lifetime. This means being strategic about what years my tax bill will be higher (by choice) and what years it will be lower. 2023 was the perfect time for me to execute a key strategy ~ A Roth Conversion. - A Roth Conversion is when you convert (move) money from your IRA to your Roth IRA. When you do this you trigger a tax bill and all of the money converted (moved) gets taxed as if you earned it that year. This year I did that with more than $300,000. - 4 Key Reasons Why 1. My tax rate was lower than nearly any previous year. While my conversion pushed a few dollars into a high marginal tax rate, my effective tax bracket (what I will actually pay) is lower. Paying the taxes now for decades of tax-free growth made sense for me. 2. My tax rate was lower (or equal to) what I expect it to be in retirement. Through continued growth of my income and current assets, I expect my tax bracket in retirement to be at or higher than what it is today. *Remember tax rates are low by every historical measure today. 3. The asset value was down. At the time of my conversion, the stock market was down nearly 20%. This provided me with a 20% discount on the conversion. Since that time those positions have rebounded but done so in a tax-free fashion. 4. Tax control in the future Based on my asset mix, there is a good chance the first time I would use "retirement" assets is not by choice but through Required Minimum Distributions (RMDs). Roth accounts are not subject to RMDs thus providing more control of my tax bill. - The key to taxes is understanding your situation. Plus Projecting out where you think you are going to be in the future. Then Understanding what strategies and timing make the most sense to execute on them. - 📌 If you find this helpful, please share it with your network ♻️ and follow me for more ways to get smarter with your money. 💵

Make too much income for a Roth IRA? Here's how to get around it: (legally) First, what's the problem. The Roth IRA is a great vehicle for tax free growth. But there are income limitations. For 2024, those limitations are as follows: Single: $146k - $161k Married: $230k - $240k MFS: $10,000 Make above these amounts? They get phased out or entirely ineligible. So what to do? Instead, you could contribute the Traditional IRA. But if you are contributing to a 401k? Those deductions are phased out! This seems like a lose lose scenario. But it opens for an opportunity. The good news is that you can use the IRA to fund a Roth IRA. This is known as a Backdoor Roth IRA. Here's what you could do: FIRST: Move all existing pre-tax IRA money into an employer plan like a 401k. 1) Open a Traditional IRA & Roth IRA 2) Fund the Traditional IRA 3) Do NOT invest the funds 4) Wait 2-3 days until funds have settled 5) Initiate a Roth Conversion into the New Roth IRA 6) Elect not to withhold taxes 7) Invest inside the Roth IRA 8) File Form 8606 to show non-deduction in Traditional IRA This process is why having a Roth 401k is pretty handy: you can make any contribution with no income limitations. Make sure to coordinate this with a financial and tax pro! The door is open for tax free money!

27-year-old Making $200K base salary as a W-2 with a $50K bonus. He also makes another $50K/year in consulting income Before we talked: - Maxes out his company 401K, pre-tax - Not doing a Roth IRA since he makes too much $ - Not sure what else he can do After we talked: - Keep maxing out company 401K, pre-tax - Do a backdoor Roth as an easy way to get $7K/year into a Roth IRA even though he makes too much money to make regular Roth IRA contributions - Adjust his 401K allocation from a 2055 Vanguard target date fund to Vanguard S&P500 since he is 27 and doesn't need bonds in his portfolio for another 20-30 years, he's not risk-averse - Open a solo 401K for his 1099 consulting income - Make a $40K after-tax contribution to this solo 401K that gets rolled into his Roth IRA (another $40K of investments in his plan that grow tax-free forever). He can also access this principal $40K contributions tax-free and penalty-free anytime so it's all upside, no downside - Simplify. Simplify. Simplify. His current brokerage account and Roth IRA have 30-50 stocks that he's pretty much ready to be done with. Roth IRA can be adjusted and moved to something simple (Tesla, IBIT, growth fund, etc) since there is no tax consequence for reallocating this. Brokerage account we can get most of this adjusted by harvesting some losses and then rebalance over time by putting new $ in a simple index fund or funds. Structuring it this way follows a strategy called asset location. Most aggressive investments in Roth. Tax-efficient stuff in a brokerage. Any conservative or high-interest stuff in pre-tax Then scale the #s. Example: Invest $10K/month vs. $1K/month. Automate as much as possible and ignore the headlines. Examples: Tariffs and market chaos, just keep buying whether markets are up or down

There’s a lot of good advice out there about converting traditional retirement accounts into Roth IRAs. The idea is simple:  - Pay tax now while rates are lower. - Then enjoy tax-free growth and withdrawals later. But there’s something that gets overlooked:  𝐓𝐢𝐦𝐢𝐧𝐠 𝐚𝐧𝐝 𝐢𝐧𝐜𝐨𝐦𝐞 𝐥𝐞𝐯𝐞𝐥𝐬. A well-intentioned conversion can quietly push someone into the next tax bracket, trigger additional Medicare premiums, or impact things like the Net Investment Income Tax. And once that happens, the benefit of the Roth can be offset by short-term tax consequences that were never part of the plan. That’s why every Roth conversion strategy needs two things: 1. A clear picture of current taxable income. 2. A forward-looking plan that considers multiple years, not just one. With the right structure, Roth conversions can absolutely unlock long-term tax savings. If you're looking to make that process easier behind the scenes, let’s connect.

If you can no longer contribute to a Roth IRA, don't worry—you still have options. Here are a few strategies to consider: - Backdoor Roth IRA: Make a non-deductible contribution to a traditional IRA and then convert it to a Roth IRA. This is a great way to get around income limits. - Roth 401(k): If your employer offers a Roth 401(k) (vast majority do), consider contributing to it. There's no income limit for contributions, and it offers the same tax-free growth and withdrawals as a Roth IRA - Mega Backdoor Roth 401(k): Contribute to your after-tax 401(k) and then convert the funds to Roth. This strategy allows you to contribute significantly more to your Roth accounts - Taxable Brokerage Account: If you've maxed out your tax-advantaged options, consider investing in a taxable brokerage account. While you won't get the same tax benefits, you can get long term capital gains These options can help you continue building your retirement savings and take advantage of tax-efficient strategies

"I make too much money to contribute to a Roth IRA." I hear this a lot from corporate executives and other high-income eraners.  Once my income crosses a certain line, Roth IRAs are no longer an option. Right? That’s not entirely true. The Backdoor Roth IRA allows high earners to still access tax-free growth and tax-free withdrawals in retirement. Here’s the basic idea. You make a non-deductible contribution to a Traditional IRA. There’s no income limit for that. Then you convert those dollars to a Roth IRA. The result is a Roth account, even when direct Roth contributions aren’t allowed. Why this matters. Tax diversification matters more than people realize. Having money spread across taxable, tax-deferred, and tax-free buckets gives you more control later, especially when tax laws change or required distributions kick in. That said, this strategy isn’t plug-and-play. If you already have pre-tax IRA balances, the pro-rata rule can create an unexpected tax bill. The details matter, and execution matters. I see a lot of people assume this strategy isn’t available to them, or they hear about it too late to use it correctly. If you’re a high-income earner, it’s worth understanding how the Backdoor Roth works before writing it off. Read more in our blog. Link in the comments.