A lot of people think that they need to wait until retirement to start getting serious about serious cash flow, this couldn’t be further from the truth. You need to ask yourself three main questions when considering a conversion to a Roth IRA and its potential effect on your tax situation. First let’s start with the when, do you need the money in 5 years or 25 years? If you are not in a hurry, then let the money grow tax free by immediately converting to a Roth through the back door Roth strategy (we will discuss this later in the article). Life is too short to not convert to a Roth, it pays BIG TIME!
The second most important thing you need to consider when converting to the Roth is your taɛ bracket – are you currently in the 24% tax bracket? Converting too much money to a Roth from a traditional IRA could potentially bump you into a higher tax bracket. Above all it is very important to get in touch with a solid CPA who understands investments and your goals/objectives when it comes down to it. A lot of CPA’s are hesitant to consult with their clients around these strategies because they don’t understand how proper tax planning/mitigation works or they aren’t familiar with the concepts. While the rate of return with these investment vehicles is going to be anywhere from 8-10% and real estate may provide a higher rate of return, it’s always wise to be diversified.
Here are the main benefits of the ROTH IRA:
- You get to pay taxes first rather than upon distributions
- The money in a Roth grows tax free
- You can start in your 20’s by simply contributing $15-20 dollars per week
If you are somebody in your 20’s reading this, doesn’t a $1,000,000 dollar distribution after contributing only $50-$80 dollars per month sound too good to be true? Well it’s called the ROTH IRA strategy. Even if you happen to be somebody in your late 30s or 40s, by simply contributing $500/month by the time you hit 67 – you are going to be a freaking millionaire. Skeptics like to claim that the market doesn’t return 10-12% every year, heck sometimes the market has no return. While this might be a reasonable argument, it falls apart when we introduce the concept of the Self-Directed Roth. The Self-Directed Roth unlike a traditional retirement plan allows you to invest in multiple financial instruments including real estate. Here are some instruments the Self-Directed Roth IRA will allow you to invest into:
- Businesses/Side Hustles
- Cryptocurrency
- Rental Properties
- Stock Market
You see, you CAN have it all. You can have the best of both worlds (real estate and the stock market) to provide you a guaranteed 10-12% rate of return every single year. Heck, if you factor in cash flow, appreciation, tax write-offs then your returns might be over 14-16%.Overall I would like to emphasize that you need to get in touch with a good financial planning & CPA team who can work in tandem to create a smooth and stress-free retirement for you and your family. If you want to learn about converting to a Roth through the Mega-BackDoor Roth Strategy or other tax efficient strategies then give us a call for a free consultation at 407-990-2002 or visit www.fitbizcpa.org. We do at least 15-20 of these every year and are relational not transactional, we put yours and your family’s needs first.
