Back door Roth Roth conversions

Forum|Forum|3 years ago
November 16, 2022
3 replies
16 views

What are the pros and cons of Roth conversions to get to a zero tax liability?

JBedford

Level 6

Hi, @Denise99 , thanks for the question! But I'm a little confused by your reference to "zero tax liability", as that's generally not associated with a backdoor Roth conversion.

The main advantage of a backdoor Roth is that it gives the ability for high earners to put money into a Roth, in spite of the fact that they are above the income limit for doing so directly. The main tax advantage of a Roth in general is that one enjoys tax-free growth. Another advantage is that these contributions (but not the earnings) can generally be withdrawn without penalty regardless of your age.

The main con is that there is no immediate tax deduction for your contributions, but for high-earners this is often a moot point.

Hope this helps!

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Denise99Author

Level 2

Thx!

I want to be able to convert all our 401k and IRA to Roth do that I pay the taxes now and once converted, have only Roth distributions and social security - and therefore my understanding is zero tax liability in the future.

pat taxes now when it’s known versus the unknown. Are there any other considerations that are pros or cons to this approach?

JBedford

Level 6

Thanks for the clarification, @Denise99 , I better understand the question now. Keep in mind that Roth distributions of earnings (in other words, amounts above what you contributed) are considered income, and that Social Security benefits are partially taxable if you have income above certain amounts. A financial advisor would be in a better position to help you decide if this strategy is right for you, but I think you now have an understanding of the tax ramifications. Hope this helps!

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