The Ultimate Guide to Backdoor Roth IRAs

🔑A backdoor Roth IRA is a strategy to contribute to a Roth IRA even if you don't qualify based on income limits.

💡To do a backdoor Roth IRA, you make non-deductible contributions to a traditional IRA and then convert that money to a Roth IRA.

💰The advantage of a backdoor Roth IRA is tax-free growth and tax-free withdrawals in retirement.

⚠️Be aware of the pro-rata rule, where the conversion may trigger taxes if you have pre-tax money in an IRA.

📝Consult a tax advisor to ensure you follow the rules and maximize the benefits of a backdoor Roth IRA.

What is a backdoor Roth IRA?

—A backdoor Roth IRA is a strategy to contribute to a Roth IRA even if you exceed the income limits by making non-deductible contributions to a traditional IRA and then converting it to a Roth IRA.

Why would someone use a backdoor Roth IRA?

—Someone would use a backdoor Roth IRA if they exceed the income limits for directly contributing to a Roth IRA or deducting traditional IRA contributions for tax purposes.

What are the advantages of a backdoor Roth IRA?

—The advantages of a backdoor Roth IRA include tax-free growth and tax-free withdrawals in retirement.

What is the pro-rata rule?

—The pro-rata rule states that when you convert a traditional IRA to a Roth IRA, you must consider the ratio of pre-tax and after-tax contributions, and any pre-tax contributions will be subject to taxes.

Should I consult a tax advisor before doing a backdoor Roth IRA?

—Yes, it's highly recommended to consult a tax advisor to ensure you follow the rules and make the most of the benefits of a backdoor Roth IRA.

00:00A backdoor Roth IRA is a strategy to contribute to a Roth IRA even if you don't qualify based on income limits.

02:57To do a backdoor Roth IRA, you make non-deductible contributions to a traditional IRA and then convert that money to a Roth IRA.

05:55The advantage of a backdoor Roth IRA is tax-free growth and tax-free withdrawals in retirement.

08:20Be aware of the pro-rata rule, where the conversion may trigger taxes if you have pre-tax money in an IRA.

09:50Consult a tax advisor to ensure you follow the rules and maximize the benefits of a backdoor Roth IRA.