Everyone’s heard of a backdoor Roth IRA, but what’s the big deal with Roth IRA’s, anyway?
As high-income earners, doctors need to know about all of the tax-advantaged retirement space available to them, including Roth IRAs.
What is a Roth IRA
Roth IRA stands for a Roth Individual Retirement Account. Typically, there are two basic types of IRAs. There’s a traditional individual retirement account, and then there’s a Roth individual retirement account.
The main difference is that a traditional IRA (depending on if you’re employed or not) can be contributed to with pre-tax dollars, meaning that you wouldn’t pay taxes on the money before you contributed to the account. The Roth IRA is built with post-tax dollars.
The journey goes: you get paid by your employer, your employer deducts money from your paycheck to account for taxes, and then you get what’s left over. So the amount that hits your bank account is what’s left over after taxes. Then you take some of that money to invest in a Roth IRA.
Backdoor Roth IRA
You may have heard of the backdoor IRA when it made headlines in the news not long ago. There was talk from a political standpoint about a bill to get rid of the backdoor Roth IRA so the rich would “pay their fair share”. But the bill didn’t move forward and the back door Roth IRA is still intact.
A backdoor Roth IRA is when you start with a traditional IRA and convert it to a Roth IRA. Why would you take that route? Listen to today’s episode to find out.
You’ll Learn:
- The benefits of a backdoor Roth IRA
- How much to save if you want to be financially independent by age 60
- What makes a Roth IRA so flexible and suitable for physicians at any career stage
- Tax details and ways to think about the future of your wealth and legacy
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