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.
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