Understanding the “Backdoor” Roth IRA Strategy

Our last post explored the many benefits of Roth IRAs, plus eligibility rules including income restrictions: in 2024, the income limits to contribute to Roth IRAs are $161,000 for single filers (MAGI*) and $240,000 for married couples filing jointly (MAGI*).

Do you earn too much to do a direct Roth IRA contribution?

Fortunately, there’s a “back door in” to still contribute.

A backdoor Roth IRA is a strategy that lets you fund a Roth IRA when your income exceeds the limit for regular contributions. However, it can be complex, with multiple accounts, steps, and special tax rules involved.

That's where our "Can I Make A Backdoor Roth IRA Contribution?" flowchart comes in:

“Can I Make A Backdoor Roth IRA Contribution?” (click for downloadable PDF)

Check out our flowchart to learn key considerations for a backdoor Roth strategy:

• Existing retirement accounts: Backdoor contributions involve existing IRAs, so understanding how they interact is crucial.

• Tax rules: Something called “the pro-rata rule” impacts the taxability of your backdoor Roth contribution. Under the right circumstances, a backdoor Roth IRA can be a tax-free move, but it can result in income taxes owed in other circumstances.

Use our flowchart to learn the basics, then consult with a trusted financial planner to navigate whether a backdoor Roth IRA strategy makes sense for you and your situation.

*MAGI = Modified Adjusted Gross Income

Have questions? Want to learn more about whether a backdoor Roth IRA strategy is appropriate for you? Schedule a free phone consultation.