What is a Backdoor Roth IRA?

How do I make a backdoor Roth IRA contribution?

A backdoor Roth IRA strategy can be particularly beneficial for high-income earners who are not eligible to contribute to a Roth IRA due to IRS contribution limits but are looking to maximize their yearly tax-advantaged retirement contributions.

The backdoor Roth IRA strategy allows you to make a non-deductible, after-tax contribution to a Traditional IRA and then convert it to a Roth IRA, effectively bypassing the income limits and allowing the investments to grow tax free during your lifetime.

There are a few key considerations to keep in mind when using a backdoor Roth IRA strategy. First, you must be careful to avoid the pro-rata rule. The pro-rata rule requires you to consider all your pre-tax IRA assets when making a conversion to a Roth IRA, which can result in tax bill if you have pre-tax Traditional IRA assets.

To avoid the pro-rata rule, you can rollover existing pre-tax Traditional IRA assets into an employer-sponsored plan and/or avoid making pre-tax contributions to a Traditional IRA. If your employer’s plan includes a Roth 401k option, you could shift some of your current contributions or make additional contributions to the Roth 401k.

If you would like to complete a Backdoor Roth IRA, contact us today to set up a free consultation. We can meet in person if you're in the area or set up a phone call or Zoom meeting if you prefer.