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TRADITIONAL and ROTH IRAs - Strategies for Building Your Retirement

Everyone saving for retirement knows that being proactive is very important. The concept of not preparing and relying on a government-sponsored retirement is a risky and unreliable practice. As stewards of our clients’ wealth, we get great satisfaction helping parents and grandparents contribute to their loved ones’ lives by properly gifting funds to a retirement account (if the loved one has earned income and qualifies). Funding retirement accounts at younger ages can increase the chances of a better funded and more comfortable financial situation during retirement.
You can contribute to a 2023 IRA until the tax filing deadline of April 15, 2024. We would be happy to help you with this process.


A traditional IRA (Individual Retirement Arrangement) is a way in which individuals can save for retirement and receive tax advantages. Traditional IRAs come in two varieties: deductible and nondeductible. Contributions to a traditional IRA may be fully or partially deductible, depending on your circumstances (i.e., taxpayer's income, tax-filing status, and other factors) and generally, amounts in a traditional IRA (including earnings and gains) are not taxed until distribution.
A clear advantage of traditional IRA accounts is the benefit of deferring tax on all dividends, interest and capital gains earned inside the IRA account and the potential for annual tax-free compounding. This may allow an IRA to have a faster growth rate than a taxable account.




A blue and white card with text  Description automatically generatedA Roth IRA is an IRA that is subject to many of the same rules that apply to a traditional IRA with some major exceptions. Unlike traditional IRAs which can be tax deductible, you cannot deduct contributions to a Roth IRA. Some Roth IRA advantages include:

  • If you satisfy the requirements, qualified distributions can be tax-free.
  • You can leave funds in your Roth IRA for your entire lifetime.
  • Beneficiaries inherit your Roth IRAs tax-free, if account requirements have been satisfied.


Many investors know and understand that the largest benefit of the Roth IRA is its tax-free withdrawal of contributions, interest and earnings in retirement, but Roth IRAs can be a powerful part of good estate planning.


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If your spouse does not work, they can still fund a spousal traditional or Roth IRA. This allows non-wage-earning spouses to contribute to their own traditional or Roth IRA, provided the other spouse is working and the couple files a joint federal income tax return. If the working spouse is covered by a retirement plan at work, deductibility of contributions to a spousal traditional IRA would be phased out at higher incomes. Eligible married spouses can each contribute up to the contribution limit each year to their respective IRAs (spousal IRAs are also eligible for a $1,000 catch-up contribution for those 50 and older). To discuss spousal IRA strategies, call us.



Starting retirement savings early can allow the potential advantage of growing money in a tax efficient account over a long period of time. Many children work before age 18. Earned income makes them eligible to contribute to a Roth IRA, which can be a smart move for teenagers. This can also provide an excellent opportunity to teach or reinforce the importance of saving money.
Some of the rules regarding custodial Roth IRAs are:

  • To be eligible to open a custodial Roth IRA, the child must meet all the same requirements as an adult. The minor must have earned income and contributions are limited to the lesser of total earned income for the year and the current maximum set by law, which for 2023 is $6,500 if you are under 50, and $7,500 if you are 50 or older.
  • Adjusted gross income for the child must be below the thresholds above which Roth IRAs are not allowed.
  • The Roth IRA must be managed for the benefit of the minor child. 
  • As the custodian, you make the decisions on investment choices—as well as decisions on if, why, and when the money might be withdrawn—until your child reaches “adulthood,” defined by age (usually between 18 and 21, depending on your state of residence). Once they reach that age, the account will then need to be re-registered in their name and it becomes an ordinary Roth IRA. 

If you are the parent of a child who has earned income, a Custodial IRA can be a great way to teach the value of saving and investing. Besides getting a head start on saving, your child may be able to use the funds for college expenses—or even to buy a first home.
There are several ways to fund a Custodial Roth. For example, you can potentially use your annual ability to gift to children or grandchildren to make this happen. If your child or grandchild is earning money, call us to discuss options for setting up a Custodial Roth.


The traditional contribution ("front door") for Roth IRAs is currently not available for higher income earners. Married couples filing jointly earning $228,000 or more and single filers earning $153,000 or more in 2023 are still fully excluded from contributing directly to Roth IRAs.

Even though higher earners are ineligible to contribute to a Roth Ira, in 2010, Congress changed the rules and since then anyone can convert a traditional IRA to a Roth IRA. A Backdoor Roth IRA is a strategy for some higher income earners to participate in Roth IRAs. It is a strategy of contributing money into a traditional IRA and then rolling that into a Roth IRA, getting all the benefits. While this strategy sounds simple, there are several rules that you must know and follow to make sure you do not incur unintended tax consequences. This is where working with a knowledgeable financial or tax professional can provide guidance and value.



The Backdoor Roth conversion can consist of two steps:

  • You make a nondeductible contribution to your traditional IRA.
  • Then, after consulting with your financial or tax professional, you convert this IRA into a Roth.

There is one big caveat: this strategy may work best tax-wise for people who do not already have money in traditional IRAs. That is because in conversions, earnings and previously untaxed contributions in traditional IRAs are taxed—and that tax is figured based on all your traditional IRAs, even ones you are not converting. (Please read the section on the Pro Rata Rule.)

For an investor who does not already hold any traditional IRAs, creating one and then quickly converting it into a Roth IRA may incur little or no tax, because after a short holding period there is likely to be little or no appreciation or interest earned in the account.  However, if you already have money in traditional deductible IRAs, you could face a
far higher tax bill on the conversion (again, this is covered later in the section on the Pro Rata Rule).

Note: While Backdoor Roth IRAs can be beneficial to many investors, they are not for everyone. They come with their limitations and complications. There are precautions that need to be taken to reap the full benefits of any financial decision. Please consult and review your situation with a qualified professional prior to choosing to use this strategy.

To further discuss funding your retirement plans, or to schedule a beneficiary review, please call us. This is an area where a highly informed financial professional can help you make an educated and calculated decision. As with all tax sensitive decisions, you should always consult with your financial and tax professional to help avoid tax ramifications.

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Capstone Wealth Advisors
5875 Castle Creek Parkway, Suite 290
Indianapolis, IN 46250

t) 866.794.8066
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