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{Replay} How to Complete a Backdoor Roth Without Costly Mistakes · The Wealth Cafe

• 0:15
  SPEAKER_00: One of the most common misconceptions that I hear from high earners is we make too much money to make a Roth contribution this year, so we're just gonna have to skip it.
• 0:24
  SPEAKER_00: However, this isn't always true.
• 0:26
  SPEAKER_00: Tonight, specifically, I want to focus on what it looks like to do a backdoor Roth.
• 0:32
  SPEAKER_00: Now, there's gonna be several nuances that we're gonna talk through in this episode between things that you can do and things that you can't do.
• 0:39
  SPEAKER_00: Doing a backdoor Roth has a lot of specific restrictions and rules that you need to follow to do this properly.
• 0:45
  SPEAKER_00: This is also something that you should talk to your financial team, between your financial advisor and your accountant to see if it makes sense for you and you and your spouse.
• 0:54
  SPEAKER_00: Now, let's dive into a couple of the do's when it comes to looking at a Roth IRA.
• 0:59
  SPEAKER_00: Now, the first thing that you do need to pay attention to is making sure you follow the two-step process.
• 1:05
  SPEAKER_00: Hear me again, two steps to this process in order to properly contribute to a backdoor Roth.
• 1:13
  SPEAKER_00: Now, here's the big difference.
• 1:14
  SPEAKER_00: When you are doing a Roth contribution, a lot of people just make open the account, they make the contribution to the Roth, and they're good to go.
• 1:23
  SPEAKER_00: But when you are doing a backdoor Roth, there are two steps you need to do in this process.
• 1:28
  SPEAKER_00: The first thing you need to do is actually open up a traditional IRA where you are going to be making a contribution.
• 1:34
  SPEAKER_00: From there, you are then going to also open up a Roth IRA and you are going to move the funds from the traditional IRA to the Roth IRA.
• 1:44
  SPEAKER_00: This is actually how we get this backdoor process happening.
• 1:48
  SPEAKER_00: Now, a lot of you are going to stop listening right here because you'll think, great, I'm just gonna go do these two steps and be on my way.
• 1:54
  SPEAKER_00: But there are several other nuances that you need to pay attention to throughout this process.
• 1:59
  SPEAKER_00: So make sure you listen to the entire episode to get all of the do's and don'ts.
• 2:03
  SPEAKER_00: The first do that we are going to cover.
• 2:05
  SPEAKER_00: Do make sure that you don't have any other IRA accounts that exist out there.
• 2:10
  SPEAKER_00: In order to be able to do a backdoor Roth, you can't have any other IRAs that exist.
• 2:15
  SPEAKER_00: Now, this can be anything from a simple IRA, a rollover IRA, or a SEP IRA.
• 2:20
  SPEAKER_00: If you have those other types of accounts, the IRS is going to automatically disqualify you from making this type of backdoor Roth contribution.
• 2:28
  SPEAKER_00: The second do, make sure you are keeping clean records of everything.
• 2:33
  SPEAKER_00: This means keep the receipts from the contributions you made to that traditional IRA, and then also the one showing that you then did the contribution from the traditional IRA into the then Roth in order to complete the backdoor Roth.
• 2:47
  SPEAKER_00: You should be able to, whatever brokerage you do this through, or if you're having a financial advisor do this for you, they'll be able to keep those records that will clearly show you making both sides of that contribution.
• 2:58
  SPEAKER_00: The other thing that I also mentioned in our previous do about not having other IRAs, make sure you also have documentation.
• 3:05
  SPEAKER_00: If you previously had an IRA that you did a conversion on to a Roth, so it no longer exists, make sure you have that paperwork.
• 3:11
  SPEAKER_00: It may not be something you need to submit to the IRS this year, but it's always good to have these clean records available when you need them.
• 3:18
  SPEAKER_00: Heaven for you get audited, you are prepared and have everything when you need it instead of scrambling to try and find these things later.
• 3:25
  SPEAKER_00: Number three, make sure that you are understanding what the contribution limits are for a Roth IRA for that year.
• 3:32
  SPEAKER_00: Because you are doing a backdoor Roth, it doesn't mean that the contribution limits are changing or are being adjusted.
• 3:39
  SPEAKER_00: Now, I'm not gonna list them out here because the contribution limits change every year.
• 3:43
  SPEAKER_00: And if you are over 50, you can also do additional contributions.
• 3:46
  SPEAKER_00: So if you head over to the IRS website, you are able to go in and take a look at what the contribution limit is for the year in which you are making the contribution.
• 3:55
  SPEAKER_00: I add that line in because you may be sitting here in March, for example, of 2026 thinking, I want to make a backdoor Roth contribution for 2025.
• 4:06
  SPEAKER_00: You have up until your tax filing deadline to do so, but make sure you are looking at the contribution limit for the previous year and the year in which you are making and doing these backdoor Roth conversions rather than the year in which you are making the contribution.
• 4:22
  SPEAKER_00: Just because you are making the contribution in 2026, if you want it to count for 2025, you're going to have to go according to 2025's numbers.
• 4:30
  SPEAKER_00: This is something a lot of people don't pay attention to, and then they end up over-contributing and running into problems down the road.
• 4:36
  SPEAKER_00: Now let's dive into the don'ts when it comes to doing a backdoor Roth.
• 4:39
  SPEAKER_00: The first one I am reiterating here because I see it trip people up time and time again, is make sure you do not have any other existing IRAs out there.
• 4:48
  SPEAKER_00: Once again, this could be a rollover, this could be a SEP, this could be a simple.
• 4:52
  SPEAKER_00: You can have another Roth that exists and you can be converting into this Roth account.
• 4:58
  SPEAKER_00: That's fine.
• 4:58
  SPEAKER_00: But you can't have, for example, a rollover from a previous employer that is pre-taxed that exists and be able to make contributions to a backdoor Roth.
• 5:08
  SPEAKER_00: That eliminates you from being able to do so.
• 5:10
  SPEAKER_00: It is not an income limit problem when doing a backdoor Roth.
• 5:13
  SPEAKER_00: It is the existence of other traditional IRA accounts that would prohibit you.
• 5:18
  SPEAKER_00: Now, one way to do this is if you are looking to do Roth conversions and to then close out that account.
• 5:23
  SPEAKER_00: This is something you need to work with your financial advisor and your tax accountant to figure out all of the implications behind that and if it makes sense for you.
• 5:31
  SPEAKER_00: And then you would be able to contribute through a backdoor of Roth.
• 5:35
  SPEAKER_00: The second thing I want you to also make sure you don't do is to forget about this account.
• 5:40
  SPEAKER_00: So many times people will do one part of the contribution, and that's why I emphasize that this is a two-step process.
• 5:46
  SPEAKER_00: If you are doing the traditional IRA contribution, you then need to make sure you follow through with the next part, which is then making the Roth IRA contribution and moving that money from the traditional to the Roth.
• 5:57
  SPEAKER_00: The other thing you make sure you aren't forgetting is that you then need to invest the money.
• 6:03
  SPEAKER_00: Or if you're working with a financial advisor, they should then be working to invest the money.
• 6:07
  SPEAKER_00: And make sure you have a plan and strategy behind this.
• 6:10
  SPEAKER_00: Yes, it's easy to say, okay, this is money for retirement.
• 6:13
  SPEAKER_00: It's money I'm not gonna touch for a period of time, whether that's two years, five years, 10 years, wherever your retirement will fall in this journey.
• 6:21
  SPEAKER_00: But you should be working with them on a strategy of what those investments look like, how you want to use the money in the future, and when you would plan during retirement to strategically take this money out.
• 6:32
  SPEAKER_00: A backdoor Roth is an incredible tool that is very specific in who it is the right fit for.
• 6:38
  SPEAKER_00: That is why it is essential for you to talk to your financial team, whether it is an accountant, financial advisor, maybe even a state attorney, to talk about if this makes the most sense for you.
• 6:48
  SPEAKER_00: You may also have other options in terms of doing Roth contributions or retirement contributions that might be a better fit for where you are in your life, in your income cycle, and for your financial goals.
• 6:59
  SPEAKER_00: This is just one option, and you need to figure out what fits best into your financial plan based on the goals that you have for your future.
• 7:05
  SPEAKER_00: If you have any questions or this is something you want to explore further, you can reach out to us at tannisfingroup.com and we can talk about if this is the right strategy for you moving forward.
• 7:16
  SPEAKER_00: Thanks for tuning in to today's episode of the Wealth Cafe, and I look forward to seeing you again next time.