Definition

A way to contribute to a Roth IRA even if you earn too much to qualify directly. You make a non-deductible IRA contribution, then convert it to a Roth.

What to consider

  • Understand that this is a workaround for high earners.
  • Make sure you’re clear on the tax implications before starting.
  • Consider talking to a professional if you’re unsure about the process.

Real world scenarios

  • When Amy’s income exceeds Roth IRA limits, she contributes to a Traditional IRA and quickly converts those funds into a Roth IRA, following the backdoor approach.
  • Before converting, Mark reviews potential tax implications with his accountant to avoid any surprises at year-end.
  • Jenny carefully files IRS Form 8606 to document her backdoor Roth IRA transaction, preventing any double taxation.

Related terms

Investments & Retirement