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| Savings Photo by Michael Longmire on Unsplash |
Capital Preservation Services is a Flowood, Mississippi company that offers coordinated tax planning solutions for businesses and high net worth individuals. Client focused, Capital Preservation Services has developed tax savings strategies that meet the needs of professionals such as physicians, attorneys, and dentists.
High-income earners looking toward retirement may consider Roth individual retirement accounts, which allow tax-free savings of $5,500 annually ($6,500 for those over the age of 50). One limiting factor is that having a modified adjusted gross income of $120,000 ($189,000 for married couples) excludes the taxpayer from contributing to a Roth IRA.
One strategy around this is the backdoor Roth, which is suited to those who have already contributed the maximum to their 401(k) plan and are making full use of high-deductible health savings accounts as well.
As described in a CNBC article, the saver makes an after-tax nondeductible contribution to the Roth IRA that can be converted free of taxes. A caveat is that the backdoor Roth cannot be looked at in isolation from other IRAs that have pretax amounts contributed. In such situations, the IRS will use the pro rata rule in levying taxes on all of the IRA accounts. What this means is that the backdoor Roth must be carefully considered and may not be financially advisable when traditional, SIMPLE, and SEP IRAs have already been contributed to.
