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What Do You Mean a Roth IRA (and a Backdoor Roth)?

Individual Retirement Accounts (IRAs) come in several flavors, Traditional IRA, Roth IRA, Simple IRA, SEP IRA. The latter two (Simple & SEP) are employer sponsored plans, so the focus of this discussion will be on the Traditional and Roth IRAs.


Here’s a general overview of each IRA:


Traditional IRA

  • Up to $6,000 annual contribution with additional $1,000 for those 50 or older

  • Tax deductible, but withdrawals are subject ordinary income tax

  • Age 59 ½ withdrawals without penalty

  • You can control the investments within the IRA – individual stocks, mutual funds, EFTs, bonds, etc.

  • Eligibility in a workplace retirement plan (401k, Simple or SEP IRA), may limit or disallow participation in a Traditional IRA.

  • Contributions must be made by your tax filing deadline

Roth IRA

  • Up to $6,000 annual contribution with additional $1,000 for those 50 or older

  • Not tax deductible, BUT qualified withdrawals are tax free

  • Age 59 ½ withdrawals without penalty, but original contributions (basis) can be withdrawn

  • You can control the investments within the IRA – individual stocks, mutual funds, EFTs, bonds, etc.

  • Adjusted Gross Income limits of $124k single filer or $206k married filing jointly

  • Backdoor Roth IRA available to those that don’t qualify for a regular Roth IRA

  • Contributions must be made by your tax filing deadline

The advantage of a Traditional IRA is the tax deduction, which lowers your AGI, which lowers your Income Driven Repayment amount (if applicable). The disadvantage is withdrawals are subject to income tax.


The advantage of a Roth IRA is qualified distributions after 59 ½ are tax free. The tax free nature could be a substantial advantage. A disadvantage is contributions are not tax deductible. Another concern is the Adjusted Gross Income phase out. This is overcome by means of a “backdoor” Roth. A backdoor strategy will allow high income earners to participate in a Roth IRA.


Take away – contribute to an IRA yearly and early in your career to maximize compound and tax free growth. And the Roth IRA might be more advantageous with qualified tax free withdrawals.


Let’s talk if you have any questions…Sergio

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