Backdoor Roth

Investing

The Backdoor Roth is a strategy for high earners (above the Roth IRA income limit) to contribute to a Roth IRA indirectly. Steps: (1) contribute $7,000 to a non-deductible Traditional IRA, (2) immediately convert it to Roth IRA. Because there's no income limit on conversions, this effectively bypasses the Roth contribution limit. Watch the pro-rata rule: if you have existing pre-tax Traditional IRA balances, conversions are taxed proportionally — making the Backdoor Roth tax-inefficient. Solution: roll existing IRAs into your 401(k) first. Report on Form 8606. The Mega Backdoor Roth uses after-tax 401(k) contributions for amounts up to $46,500.