Everyone in the Capital Region should be an investor. That's simply because the traditional 3-legged stool of pensions, Social Security, and savings is down to one leg: savings. And to maximize savings, we need to become prudent, wise investors. It is the only game in town, as they say.
But even established, sophisticated investors can and should make use of the Roth IRA.
- High-income earners can generally not make a contribution to a Roth IRA.
- The IRS has income thresholds that limit the size of the contribution that high earners can make. Above that threshold, direct contributions to a Roth IRA are disallowed.
- But there is a way around that. People who make a lot of money can make a nondeductible contribution to a traditional IRA and then convert it to a Roth.
"It's what is called a back-door Roth. Everybody can do a nondeductible IRA and then convert to a Roth," says financial adviser Graham Lerch.
"Up until 2010, there were limitations on who could convert. Now that is one of the options for anyone who had built up assets in a traditional IRA," says Lerch.
However, the IRS does require you to take into consideration all your pretax holdings when figuring the tax liability of a conversion. Because it's complicated, it's best to consult a tax professional before attempting this maneuver.
Dave Balog teaches finanical solutions for middle class families. Join him for a month-long series of presentations at the Rotterdam town library. Click here for more details. firstname.lastname@example.org, 952-1257.