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What A Roth Really Is
- A Roth account holds after-tax contributions that grow tax-free and are withdrawn tax-free in retirement.
- If you can get money into a Roth without being taxed first, it can remain tax-free forever.
How To Do A Backdoor Roth
- Do the backdoor Roth by contributing to a nondeductible Traditional IRA then converting it to a Roth shortly after.
- Report it correctly on IRS Form 8606 to avoid paying unnecessary taxes.
Pro Rata Rule Can Ruin Backdoor Roths
- Beware the pro rata rule: having other Traditional/SEP/SIMPLE IRAs at year-end prorates taxable vs. non-taxable portions of a conversion.
- That rule can ruin the tax-free intent of a backdoor Roth if not planned for.