Backdoor Roth IRA: A Financial Planning Strategy

Each year, one of the most discussed financial planning topics centers around the Roth IRA, including the slightly more complex Backdoor Roth IRA.  Contributing to a Roth IRA through traditional means or through the backdoor strategy provides many potential tax benefits.  We often see individuals looking to maximize retirement savings in a tax-free manner, so let’s briefly unpack the benefits of contributing to a Roth IRA.

1. Protection from future tax rate increases – Uncertain tax policy, administration changes in Washington, D.C., and financial crises may all play a part in a decision to contribute to a tax-free retirement vehicle.
2. Tax-free wealth accumulation – With no tax on principal withdrawals, the earnings within a Roth IRA, or any accumulated gains at the time of distribution, a Roth IRA provides a way to build wealth without worrying about tax.
3. Increased flexibility in retirement – Roth IRAs are not subjected to the same age requirements for required minimum distributions or contributions as other retirement vehicles, allowing for a more customizable retirement solution.
4. Interplay with estate planning – Assets left to beneficiaries in a Roth IRA provide increased flexibility in the estate planning process. Beneficiaries may be able to withdraw funds immediately or defer the withdrawal for up to 10 years, allowing for additional accumulation of tax-free growth.

As the year draws to a close and planning moves to center stage, remember to always consult with your wealth management and your Grapp Lerash tax advisor prior to instigating change in your financial plan.

Grapp Lerash is a full-service CPA firm headquartered in Saginaw, Michigan.  At Grapp Lerash, we believe there is so much more to tax and planning.  Our approach focuses on asking the right questions, investigating each unique scenario, and discovering solutions that work.  We deliver our service through an impactful, solutions-based approach that centers around collaboration and connecting our clients with the right people at the right time.  Let’s talk – see how we are accounting, done differently.