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What We’ll Cover Today Let’s Review IRA Rules Converting your IRA to Roth Converting your 401(k) to Roth

Traditional IRAs – In the Old Days deposit pre-tax dollars all dollars taxed when withdrawn Max contribution $5,500 ($6,500 if age 50 or older) The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Hold On – That’s Too Generous Traditional After-Tax IRA After-tax deposit if income too high Gains taxed when withdrawn Max contribution $5,500 ($6,500 if age 50 or older) The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Who Must Make After-tax Deposits to Traditional IRA? Source: https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work. The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Given No Upfront Tax Break… Roth IRA May Be Better Entire account tax-free when withdrawn* After-tax deposit *After age 59 ½ and five years Max contribution $5,500 ($6,500 if age 50 or older) The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Plus, Early Withdrawals from Roth are Less Painful IRA After-tax basis can be withdrawn at any time The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Just When You Think You’re On to Something Source: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2018.The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

The “Backdoor” Roth IRA

But You Can Convert to Roth Conversions were only available if your income did not exceed $100,000 Thanks to the Taxpayer Relief Act of 2012 now everyone convert But pre-tax amounts converted are considered taxable income in the year of conversion (no penalties apply) The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

In an after-tax traditional IRA ONLY the gains are taxable upon conversion! The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Back Door Roth Example: Worker and spouse earn $220,000 Traditional After-Tax IRA $5000 After-tax deposit Roth IRA Balance at conversion = $5,500 Only $500 is taxable! The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

IRS considers 52% of each dollar converted taxable Be Aware of the Pro Rata Rule Traditional After-tax IRA $5000 After-tax deposit Roth IRA Balance at conversion = $10,500 IRS considers 52% of each dollar converted taxable Existing Pre-tax IRA - $5000 The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Roth Conversions Allowed in Your 401(k) Too Both your pre-tax account and matching account can be converted Associated charges $50 per conversion Can’t use the 401(k) to pay the taxes, unless you are age 59 ½ or older The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Convert to Fill Up a Tax Bracket Source: https://taxfoundation.org/2018-tax-brackets/. The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

Standard Deductions Increase $24,000 $12,700 $12,000 $6,350 2017 2017 2018 2018 Married filing jointly Single The above summary is from sources believed to be reliable but cannot be guaranteed. Francis Investment Counsel does not provide tax or legal advice. Seek advice from qualified professionals.

See Your Tax Advisor for the Math!