Roth IRAs: How High Earning CRNAs Slip Past the Income Limits
Download MP3Welcome to Money Moves for CRNAs, a podcast made just for independent 1099s like you. Twice a month, we talk about taxes, smart ways to plan ahead, and how to grow your money. Each episode is short and easy to understand. Just a heads up. These tips are for learning.
Bill White:For your own money plan, it's best to talk to a tax or money expert. Here's your host, Randy Larkin from Atlanta Tax Planner.
Randy Larkin:Hi there. This is Randy Larkin. Remember how we talked about the Roth IRA in our last podcast and how some people make too much money to use it? Well, guess what? There's a backdoor, and it's a 100% legal.
Randy Larkin:Let's unlock the backdoor Roth IRA. Step one: What is the backdoor? If you earn too much money, the IRS won't let you contribute directly to a Roth IRA. But here's the trick. If you put money into a non deductible traditional IRA first and then you convert it to a Roth IRA.
Randy Larkin:Boom. Now you're in. Step two. After tax contributions only. To keep this clean and simple, you want to make a non deductible contribution to your traditional IRA.
Randy Larkin:That means you're using money you've already paid taxes on. This way, when you convert it to a Roth, you shouldn't owe more taxes as long as you do it the right way. When should you do it? Let's talk timing. Because when you do this matters just as much as how.
Randy Larkin:Best time. Number one. Early in the year. If you make the contribution and conversion early, like January or February, you'll give your money more time to grow tax free in a Roth IRA. Also, you won't forget about it later in the year.
Randy Larkin:Best time, number two, ASAP after you contribute. Don't wait too long between putting the money into the traditional IRA and moving it to the Roth. Why? Because even if it earns a little interest, that interest becomes taxable when you convert it. So try to convert it within a few days.
Randy Larkin:Sometimes even the same day. Pro rata rule. Watch out! Here comes the tricky part. Pro rata rule If you have other traditional IRAs with pre tax money in them, the IRS makes you mix it all together when you convert.
Randy Larkin:This means your backdoor Roth could end up being partially taxable. Solution? If your job offers a 401-K roll your other IRA money into that. It keeps your backdoor simple and clean. Easy timeline for backdoor Roth Here's your simple plan: one.
Randy Larkin:Open a traditional IRA. Two, Put in after tax money up to $7,000 or $8,000 if you're 50 or over. Three, Convert it to a Roth IRA ASAP. Four.
Randy Larkin:Avoid having other pre tax IRAs hanging around. Why do this? Because the Roth IRAs are amazing for long term savings. You don't pay taxes when you take the money out later. You don't have to withdraw the money if you don't want to.
Randy Larkin:And you can pass it on to your family tax free. If you earn too much to get in the front door, the back door gives you all the same benefits. Recap time. Let's wrap it up. Too much income for a Roth IRA?
Randy Larkin:Use the backdoor method. Put money into a traditional IRA, after taxes, then convert it quickly to a Roth IRA. Do it early in the year and don't wait too long. Watch out for other IRA money. The pro rata rule can mess things up.
Randy Larkin:And now, you're in the Roth IRA club. Now you're not just saving, you're strategizing.
Bill White:Alright friends, that's it for today's episode. We hope you picked up something helpful. If you're curious about how we work with other 1099 CRNAs, head over to crnataxes.com to learn more. Next time, we're hitting pause on our Roth IRA series to talk about the brand new big beautiful bill that just became law and the big changes it brings for our ten ninety nine CRNA clients. Can't wait to share it with you.
Bill White:Music licensed from premiumbeat.com under license number 7394047.
