It’s time to clean out the inbox. Here’s a confusing question I’ve fielded lately:
Fred: Are there income limits to consider for backdoor Roth IRA conversions? My wife and I are in our late 50s and make about $300,000.
Answer: The first step to a backdoor Roth is to contribute to a non-deductible traditional IRA. Because it is not deductible, there is no income limit. The second step is to convert a non-deductible IRA to a Roth IRA, which can be done almost immediately. Just remember that for this to work to your best advantage, make sure you don’t have a traditional IRA account, which would trigger the pro-rata rule and limit the effectiveness of a backdoor Roth.
David: I’ve been converting large blocks of my traditional IRAs to Roths over the past two years. Thanks to SECURE Act 2.0, I think I have a few more years before I start taking required minimum distributions. Does it make sense to convert and pay taxes now?
Answer: The SECURE Act 2.0 raised the RMD age to 73 (and it will rise again to 75 in 2033). Until you have collected all the cash you have available to pay the outstanding taxes, I would continue with the conversions. Try to do something at once and stay in a tax bracket that is affordable to you over the next few years.
Bobby: I am 45 years old, divorced, no children. I get total disability benefits from my job in the Army, but luckily, my injuries don’t stop me from working, so I have extra money at the end of each month. Before you ask, I have an emergency fund and am completely debt free (including my house). I maxed out my Roth retirement plan at work but then, I’m not sure what to do … should I open a brokerage account? If so, how do I invest it — just like a retirement account?
Answer: A brokerage account would be great – and it doesn’t need to be too complicated, just pick a few index funds to start, maybe a stock index fund, an international stock index fund and an intermediate term bond index fund. Since you may need (or want) to access the account sooner than your retirement funds, consider making the account a little less aggressive than a retirement account.
Mary: I am 64, single, still working, no debt. My total assets (brokerage, IRA and 401(k)) total over $1 million. My mortgage balance is $80,000 and I’m thinking of using some of my 401(k) to pay it off. I know it’s probably not the best financial decision, it’s psychological. What do you think?
Answer: The big downside to paying off a mortgage is that you lose liquidity (or easy access to your money). But if you’re really hyper about outstanding debt, don’t withdraw from tax-deferred retirement accounts and pay taxes; Tap Taxable Brokerage Accounts instead. Try to leave yourself with enough after-tax dollars, just in case!
Andy: I am 60 years old, still employed with no children or spouse. My investments and savings total about $500,000 and my home is worth about the same amount. Should I consider a revocable trust?
Answer: It doesn’t sound like you need a revocable trust, especially since you don’t have any heirs to whom you want to manage your assets. That said, you need a will, a power of attorney and a health care proxy A qualified estate attorney can handle all of this for you.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, he welcomes comments and questions at ask[email protected]. Visit his website at www.jillonmoney.com.
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