What is a Back Door Roth?
A backdoor Roth is a conversion of Traditional IRA assets to a Roth IRA for those individuals who don’t normally qualify for contributing due to exceeding the income limits.
In order to set up a backdoor Roth, you must have earned income like wages or self-employment income to be able to make a non-deductible IRA contribution. The funds you contribute in a back-door Roth are considered ‘converted funds’ not ‘contributions’ to a Roth, if you’re under the age of 59½ you will need to wait five years to be able to have penalty-free access to your funds. This is different from directly contributing to a Roth IRA.
Income and Contribution Limitations in 2019 vs 2018
- Roth IRA Income Limitations: In 2019, if your modified Adjusted Growth Income (MAGI) is $137,000 (single) or $203,000 (married filing jointly or qualifying widow[er]), you may not contribute to a Roth IRA. (In 2018, those limits are $135,000 (single) and $199,000 (married filing jointly or qualifying widow[er]). These limits do not apply to Roth IRA backdoor conversions.
- Roth IRA Contribution Limitations: Starting in 2019, you may contribute only $6,000 ($7,000, if you are age 50 or over) to a Roth IRA. (The 2018 limits are $5,500/$6,500.) With a backdoor Roth IRA conversion, these limits do not apply.
Retirement Account Rollover
Do you have a 401K/403B from a previous employer? If so, contact a Wahed representative to learn more about how you can take advantage of a Rollover IRA and invest your funds in a Halal diversified portfolio. Keep in mind, there are NO tax implications to rolling over your previous retirement account.