Episode 199: Common Backdoor Roth IRA Mistakes and How to Avoid Them
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Episode 199: Common Backdoor Roth IRA Mistakes and How to Avoid Them
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High-income professionals often find themselves locked out of direct Roth IRA contributions. The "Backdoor Roth" is the gold-standard workaround, but it is a strategy where small administrative errors can lead to big tax bills. In this episode, we break down the mechanics of the Pro-Rata Rule, why your Form 8606 is the most important document in your tax return, and the specific steps physicians must take to keep their backdoor strategy "clean."
Key Takeaways
- Pre-Tax vs. Post-Tax: Understanding why the source of your IRA funds determines your tax liability.
- The Pro-Rata Rule: Why the IRS treats all your IRAs as one "pot of soup" and how existing SEP or SIMPLE IRA balances can trigger unexpected taxes.
- The December 31 Rule: Why your total IRA balance at the end of the year is the only number the IRS cares about for conversions.
- Solo 401(k) vs. SEP IRA: Why 1099 contractors should favor the Solo 401(k) to keep the backdoor strategy viable.
- Form 8606 Essentials: The common filing errors that lead to double taxation and why each spouse needs their own form.
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Dr. Elisa Chiang is a physician and money coach who helps other doctors reach their financial goals by mastering their money mindset through personalized 1:1 coaching .
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