馃攳
Backdoor Roth IRA (HOW TO DO IT IN 3 STEPS) - YouTube
Channel: It's Your Girl Rose
[0]
what is up everyone I'm rose and welcome
back to my channel the number one place
[5]
for financial education empowerment and
inspiration as of 2019 Roth IRA
[10]
contribution limits start getting phased
out when you make more than one hundred
[14]
twenty two thousand dollars if you're
single or one hundred ninety three
[18]
thousand if you're married filing
jointly boohoo I know first role
[22]
problems but just because you make a lot
of money doesn't mean you enjoy paying
[26]
taxes any more than the next person
luckily there is a workaround and it's
[31]
called the backdoor Roth IRA the
backdoor Roth IRA is a hundred percent
[36]
legal and it takes advantage of a
little-known tax loophole it doesn't
[40]
matter how much money you make anyone at
any income level can qualify in this
[45]
video I'll explain how the backdoor Roth
IRA works and why it's legal then I'll
[51]
show you how to do it step-by-step on my
screen using my fidelity brokerage
[56]
account and finally I'll talk about some
of the common pitfalls that a lot of
[60]
people miss when doing a backdoor Roth
IRA if this sounds good to you give this
[65]
video a like and with that we're gonna
jump right in so let's talk about how
[70]
the backdoor Roth works and why it's
legal although high income earners can't
[75]
directly contribute to a Roth the IRS
has a quirky exception in the tax law
[81]
that allows high income earners to
indirectly contribute to their Roth IRA
[86]
in other words high income earners what
they can do is contribute to a
[91]
traditional IRA which has no income
limits and then convert that traditional
[96]
IRA into a Roth IRA this is perfectly
legal because while Roth IRA
[102]
contributions are subject to income
limits Roth IRA conversions are not it's
[108]
a weird little quirk in the tax law and
many high income earners take advantage
[113]
of this loophole every single year so
here's how to do a backdoor Roth IRA
[118]
step-by-step okay the first step is to
open your traditional IRA and also open
[125]
your Roth IRA
need to open two accounts assuming this
[129]
is the very first time you've done it
you don't have either so the tradition
[133]
IRA is where you first make your
tax-deductible contribution and you're
[137]
also going to need a Roth IRA in order
to do the conversion basically you need
[141]
an Origin account and you need a
destination account so you need both
[145]
before you really do anything
so first let's open the traditional IRA
[149]
for that you just follow the basic
account opening procedures enter name
[155]
and email pretty vanilla stuff they're
gonna ask you to confirm your address
[160]
social security number things like that
and they are gonna ask you this might be
[166]
a little unfamiliar to you what you want
your core position to be and the core
[170]
position is basically what they what you
want your cash to be sitting in if it's
[177]
not invested in stocks and bonds and
honestly this part doesn't really matter
[181]
I would just pick the FDIC insured
option because it's FDIC insured which
[186]
is nice
and it really doesn't matter because
[189]
we're not trying to make the highest
return on our money right now so it
[193]
doesn't matter which position you pick
you're gonna do the contribution and the
[196]
conversion back to back and they'll
actually like complicate things if you
[200]
have earnings because then you have to
report some extra things on your tax
[204]
forms so just don't get stuck on this
step just open the account and and once
[210]
you have your traditional IRA open then
you just repeat the exact same process
[215]
for the Roth IRA
so after you've done that I will see you
[220]
when you're ready to do the contribution
and the conversion okay so once you
[229]
create the accounts and you log in you
will be taken to this home page and to
[236]
do the conversion we first need to
deposit money into your traditional IRA
[241]
and then the second step would be to
then convert that money into the Roth
[246]
IRA so there's two steps here for the
first step we're going to click transfer
[251]
and this little trade window pops up and
I'm assuming you would have connected
[258]
your checking accounts and external
who counts right now I am NOT gonna go
[262]
over that in this tutorial but you
basically transfer from you select the
[268]
account you're transferring from so in
my case it would have been my personal
[273]
checking account and then you transfer
to obviously our traditional IRA which
[281]
is going to be the originating account
for the backdoor Roth conversion and the
[287]
amount you would probably want to max it
out for 2019 it's gonna be the limit is
[293]
the annual limit is $6,000 so if you can
do the max and then you click continue
[300]
and then you just review and submit the
transfer and the funds should be in your
[308]
account within says here about four
business days I've seen it done sooner
[314]
but basically you'll want to set a
reminder in your calendar and make sure
[318]
you remember to do the conversion once
it lands in your fidelity traditional
[323]
IRA so after you do that let's just fast
forward four days later and do the
[334]
second step of the Roth conversion there
are two ways you can do the Roth
[342]
backdoor conversion the first way is DIY
where you go to the transfer window and
[348]
you literally just do a transfer from
your traditional IRA to your Roth IRA
[353]
and that will essentially be back to our
Roth conversion um another way you can
[359]
do it is you can literally just call up
the fidelity and have them walk you
[364]
through it over the phone
this might be better for you if it's
[368]
your very very first time doing it that
way you make sure that there's
[372]
absolutely no mistakes just because you
know the potential penalties and costs
[376]
of making a mistake is so high and
fidelity offers free 24/7 customer
[381]
service or they're very happy to walk
you through it so that is really the
[385]
route that I recommend but if you want
to do it yourself or you you know you
[390]
feel pretty confident and well-versed in
this stuff
[392]
you could just open the same transfer
window as before and you would literally
[398]
just put the traditional IRA here in the
transfer from box and select the Roth
[405]
IRA in other words the destination
account in the transfer to drop down
[410]
menu and just click continue and confirm
the transfer so that would in effect do
[417]
the Roth factor conversion for you as
well all right so that's basically how
[423]
you do a backdoor Roth conversion on
fidelity and of course it will look very
[427]
similar at any other brokerage platform
and again you can always call customer
[432]
service and just have them walk you
through it step by step - so that's
[437]
really it the actual process is quite
simple especially if you use a platform
[442]
like fidelity or even Vanguard they make
it really easy and now for some common
[447]
pitfalls to look out for when you do
your own backdoor Roth IRA the first
[452]
pitfall to look out for is not
remembering the pro rata rule the pro
[458]
rata rule basically says that you can't
do a backdoor Ross if you have any money
[463]
sitting in a traditional IRA a rollover
IRA a simple IRA or a SEP IRA otherwise
[471]
you would trigger a pro rata calculation
that incurs taxes and basically cancels
[476]
out all the benefits of a backdoor Roth
IRA it's kind of complicated and to be
[480]
honest I don't really understand it
myself but basically make sure you don't
[484]
have anything in these types of accounts
on December 31st of the year in which
[490]
you do the backdoor Roth conversion the
second pitfall to look out for is to not
[495]
make things more complicated than they
need to be by spacing out your
[500]
contribution and the conversion so when
you make your first initial
[504]
non-deductible traditional IRA
contribution then do the Roth IRA
[508]
conversion right after and if possible
like do it in the same calendar year do
[513]
it within 24 hours do it on the same day
if you can because if you leave a lot of
[518]
time in between the the contribution and
the conversion your money might accrue
[522]
some interest and go up in value and
would just complicate things because
[526]
then you'd have to pay taxes on the
gains and I don't even know how that
[530]
would work
you probably have to report some extra
[533]
things and maybe pay something so just
keep it simple and do the conversion as
[536]
soon as you make the contribution as
soon as the money lands in the account
[540]
just like I showed you in the tutorial
the third pitfall something I mentioned
[544]
before is please please please be sure
to fill out form 80606 correctly if you
[551]
make a mistake filling it out or worse
you forget to do it at all
[554]
you could end up paying way more taxes
and you were trying to save in the first
[558]
place I know it's not exactly the
funnest thing to learn how to fill out
[562]
an IRS tax form correctly but a lot of
you are probably going to be doing this
[567]
back to a Roth IRA every year for many
years here on out and the forms gonna
[572]
look exactly the same every year for you
so it's really worth the the effort
[576]
upfront to learn how to do it right have
an accountant look look over if you need
[580]
to but whatever you do don't mess up
formed 80606 in the description I've
[586]
linked to a really good tutorial that
I've seen on how to fill out form 80606
[589]
correctly it's not a video that I've
made but I know that it's really
[593]
step-by-step and will help you from you
know fucking up big time on this form as
[598]
you can see there's definitely a couple
extra steps and things to keep in mind
[602]
for the backdoor Roth IRA but it is
worth it to put it into perspective if
[609]
you invested ten thousand dollars in
Apple stock over thirty years ago you
[613]
would have thirteen million dollars
today and if you were smart and you've
[617]
done the backdoor Roth then all thirteen
million dollars of that would be for you
[622]
however if you hadn't done the backdoor
Roth IRA
[625]
because you were either too lazy or you
didn't know about it and it was just
[629]
sitting in some sort of taxable account
then you would owe four million dollars
[633]
in taxes that's a big difference so even
though there's a little extra work
[636]
involved with the backdoor Roth IRA I
think it's a hundred percent worth it
[640]
now once you do your backdoor Roth IRA
if you want some ideas and step-by-step
[645]
information on how to invest that money
in your backdoor Roth and check out my
[650]
Roth IRA investing starter kit it's an
awesome PDF resource and I go over three
[655]
ways to invest the money in
Roth IRA I go really in depth it's very
[660]
step by step and I think you're gonna
love it so click the link below it's in
[663]
the description and you can download it
right away if you think this video was
[667]
helpful please give it a thumbs up and
subscribe subscribe subscribe it really
[671]
helps out the channel and more
importantly helps get this life-changing
[675]
financial literacy in front of more
people I post new videos like this every
Most Recent Videos:
You can go back to the homepage right here: Homepage