This is really only a good idea

This is really only a good idea if you’re very concerned about high taxes in retirement or if you’re extremely young and can bank on your investments in your Roth IRA quadrupling (or more) in value by the time you reach the age where you can take money out of your Roth IRA. If you’re young and single and want to really hammer your retirement savings early in your career, this is a thing well worth considering. If you’re considering it, talk to the administrator of your 401(k) plan at work and ensure that you’re allowed to to make non-Roth after-tax contributions. You’ll also want to find out if you can make in-service withdrawals, which means that you can immediately do the “mega backdoor” Roth IRA conversions; if not, you have to wait until you leave your job and then do the conversion all at once.Big Boss vote

you’ll occasionally hear talk of a “mega backdoor Roth IRA.

One final note: you’ll occasionally hear talk of a “mega backdoor Roth IRA.” This is a similar tactic that’s perfect for people who want to save enormous amounts of money in a Roth IRA, far above the $5,500 a year limit. However, it requires you to have a 401(k) plan at work that allows you to make non-Roth after-tax contributions – meaning that you can take money from your checking account (or straight from your paycheck after taxes are deducted) and contribute it into your 401(k) plan. Not all plans do this; in fact, many do not. If your plan does allow this, you can make up to $36,000 per year in those kinds of contributions to your 401(k) and then convert all of that money straight into a Roth IRA. Of course, this is all after-tax money, meaning you’ve already paid income taxes on it this year.

So, if you have $8,000 in a traditional IRA

So, if you have $8,000 in a traditional IRA and want to convert it to a Roth IRA, you can do so, but you’ll have to pay income taxes on that $8,000. However, after that point, it’s Roth IRA money, which means that (a) the $8,000 is treated as a contribution so you can withdraw it when you want and (b) once you’ve had the account for five years and you’re 59 1/2 or older, you pay no taxes on the earnings on that $8,000 when you withdraw it. So, you pay $2,000 or $3,000 or so in income taxes this year, but after that, it grows for the rest of your life without ever having to be taxed.

For people earning a lot during their career but not planning to earn much

For people earning a lot during their career but not planning to earn much when they reach retirement age, this isn’t a big deal. Their tax rates will be low when they’ve reached retirement age, so paying income taxes on the money they take out of a traditional IRA in retirement won’t take a big bite out of their income. For those people, a traditional IRA is perfect.

The problem comes when someone is still earning a lot in retirement and wants to take money out of their traditional IRA. They’re going to pay a lot in taxes. Those are the people that a “backdoor Roth IRA” is going to help.

A traditional IRA is

A traditional IRA is a lot like a Roth IRA except that there are no income limits – anyone can open one. You have to pay income taxes on the money you take out in retirement. However, if your workplace doesn’t offer a retirement plan, then the first $5,500 you contribute to a traditional IRA is tax deductible (with a few loopholes, as there always are with these things). You can make non-deductible contributions to a traditional IRA, too, meaning you pay taxes on your contributions now, but taking advantage of that requires a lot of bookkeeping