What is Backdoor IRA?

Backdoor IRA is not an account. It is a strategy that allows high-income earners to contribute to a Roth IRA even if their income exceeds the normal limits. Here's how it works:

The Backdoor Strategy

1. Contribute to a Traditional IRA: You make a non-deductible contribution to a traditional IRA. This means you don't get a tax break for the contribution.

2. Convert to a Roth IRA: You then convert the money from the traditional IRA to a Roth IRA.

   This is a taxable event, but since your initial contribution was already taxed, you'll likely owe little to no tax on the conversion.

Important Consideration : Pro-rata rule: If you have existing pre-tax traditional IRA balances, the conversion can become more complex due to the pro-rata rule, which could result in a larger tax bill. To avoid complications, move any existing IRA funds into a 401(k) before initiating this process.

Visualization Created for Harry: Tom is 24 years old and started working . If Tom invest just $7,000/year as Backdoor Roth IRA. How much money Tom will have when he turns 60?

With 11.03% return, Tom would have close to $2.9 million and with 14.56% return it will be close to $7.3 million dollars when Tom will be celebrating his 60th birthday. All the amount will be Tax FREE!!

The above table is the projection of the balance by the age considering different lifetime return percentage of four (4) Fidelity Funds which are in existence for more than 30 years.

Thank you and keep building your legacy through Generational Wealth! Take care and don't forget to enjoy the journey and take care of your health.

Note : Please note that the calculations are estimates based on certain assumptions, such as variable annual returns. This blog post is intended to illustrate the potential long-term benefits of consistent saving and investing, not to provide specific financial advice. The information presented on this blog, including any visualizations or projections based on average historical data, should not be considered financial advice. Investing involves inherent risks, and the value of investments can fluctuate significantly.

Call To Action : Open a Traditional IRA & ROTH IRA NOW and complete Backdoor!