In this episode, CERTIFIED FINANCIAL PLANNER™ Timothy P. Pope delves into the intricacies of the backdoor Roth IRA strategy. He explains how this method allows high income earning pilots to bypass income limits and contribute indirectly to a Roth IRA, providing valuable insights and considerations for implementation. Tim explains how modified adjusted gross income (MAGI) affects eligibility for Roth IRA contributions and why it’s important to track your compensation growth.

Tim outlines common scenarios where pilots may inadvertently contribute more than allowed to a Roth IRA. He also discusses  two primary methods to fix these excess contributions: removal and recharacterization. Tim explains the process for each method, highlighting considerations such as tax implications and timing requirements. Lastly, Tim  emphasizes the importance of assessing existing IRA accounts and potential tax implications before executing a backdoor Roth IRA strategy.

What You'll learn from this episode:

1. Roth IRAs offer tax-free growth potential, but eligibility is subject to income limits based on Modified Adjusted Gross Income (MAGI)
2. Making contributions to a Roth IRA while exceeding income thresholds may necessitate corrective action, such as excess contribution removal or recharacterization.
3.  The pro-rata rule: What is it? How it’s enforced by the IRS and how it affects individuals with pre-tax IRA balances.
4.  Why consideration of pre-tax IRA balances and potential tax implications is crucial before executing a backdoor Roth IRA conversion.
5. Why pilots need to assess their current financial circumstances and tax planning needs before executing on these strategies.

Resources:
IRS Form 8606 - Instructions
Schedule An Appointment
Our Practice’s Website
Send Us Your Questions: pilotmoneypodcast@ceterainvestors.com

Disclosure:
Timothy Pope is a Certified Financial Planner™ offering securities and insurance products offered through Cetera Investment Services LLC, member FINRA, SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Tim’s Branch Office is located at 5200 77 Center Drive, Suite 330, Charlotte, NC 28217. The branch phone number is 704-717-8900.

The views depicted in this material are for information purposes only and are not necessarily those of Cetera Investment Advisers.

This Podcast is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.