Backdoor Roth IRA Contributions

Backdoor Roth IRA Contributions

A Backdoor Roth IRA Contribution refers to a strategy that allows individuals to indirectly contribute to a Roth IRA despite income limits that typically prevent direct contributions.

This process involves two main steps: first, an individual makes a non-deductible contribution to a traditional IRA, which has no income limits for contributions. Then, shortly after, the individual converts that traditional IRA to a Roth IRA. Because the original contribution was non-deductible, the conversion usually incurs little to no tax liability.

This strategy is particularly beneficial for high-income earners who exceed Roth IRA income thresholds, enabling them to benefit from the tax advantages of a Roth IRA, such as tax-free growth and tax-free withdrawals in retirement.