The Rob Berger Show RBS 149: 12 Things You Must Know About A Backdoor Roth IRA (Including If It's Worth The Hassle)
Jul 31, 2024
Discover the ins and outs of a Backdoor Roth IRA, a savvy strategy for high-income earners. Learn the key differences between IRA and 401(k) contributions and why non-deductible contributions can be beneficial. Explore the history and legality of this approach, plus the impact of the Pro Rata Rule on your tax situation. Dive into the Mega Backdoor Roth option and understand the nuances of converting mixed IRA balances. Finally, crunch the numbers to see if the potential tax-free growth is worth the effort.
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Backdoor Roth Defined
- A Backdoor Roth IRA is making a non-deductible traditional IRA contribution and then converting it to a Roth IRA. This lets high earners get money into a Roth despite direct contribution limits.
IRA Deductions Require Tax Reporting
- Traditional IRA deductions require you to report contributions on your tax return, unlike 401k payroll contributions. Non-deductible IRA contributions exist because some taxpayers exceed deduction eligibility rules.
Use The Backdoor If You Exceed Limits
- If you make too much to deduct traditional IRA contributions and too much to contribute directly to a Roth, use the backdoor Roth strategy. Make a non-deductible IRA contribution and then convert it to a Roth IRA.