What is a backdoor Roth IRA?

A back-door Roth IRA is a maneuver that allows High-Income Professionals (HIPs) to contribute to a Roth IRA. Because you are disqualified from contributing directly to a Roth IRA if your Adjusted Gross Income (AGI) exceeds limits imposed by the IRS, HIPs lose the ability to make direct Roth IRA contributions. In 2018, you cannot contribute to a Roth IRA if your AGI exceeds $199k (MFJ) or $135k if you file Single or HOH.

To convert to a back-door Roth, you first contribute to a TIRA (Traditional IRA), which is nondeductible. You then convert the amount in the TIRA to a Roth IRA. You can convert your non-deductible TIRA funds at any time, not just in the year you contribute them.

If your account has any earnings between the time you contributed to the TIRA and the conversion, you will owe income taxes on the earnings. If the account has decreased in value (lost money), you will not get to deduct the “loss”.

Be sure to file IRS Form 8606 for any year that you contribute to a nondeductible TIRA and when you convert to a back-door Roth IRA. If you convert in the same year of the contribution, you will file only one Form 8606.

Vlog: How does a backdoor Roth IRA work?

When should you convert to a backdoor Roth IRA?

What is the wrong time to convert to a backdoor Roth IRA?

What is a Roth IRA and do I need one?

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