The Roth Series II: The Backdoor Roth IRA

 The Roth IRA, Backdoor Roth IRA and Mega Backdoor Roth IRA are oft misunderstood and underutilized retirement savings strategies. In my Roth three-part series this week, I'm going to break down each Roth IRA strategy, who is eligible to use them, and what you need to know when using them.

This article focuses on the Backdoor Roth IRA. If you have an after-tax 401(k), forget the Backdoor Roth and read about the Mega Backdoor Roth instead.

You can find all the articles from the Roth IRA series here.

Who Is The Backdoor Roth IRA Strategy For?

For those who don't qualify to contribute directly to a Roth IRA because income is too high and do not have access to the Mega Backdoor strategy, a standard Backdoor Roth is the next step. The Backdoor Roth strategy can be useful to increase your tax-advantaged retirement contributions using personal IRA accounts. The contribute limit is the same as regular Roth contributions.

Remember that Traditional and Roth IRAs share the same contribution limit, and it is a combined limit. Therefore, you cannot contribute both to a Roth IRA and carry out a Backdoor Roth in the same year in an effort to make additional contributions. It doesn't work that way. If you qualify for regular Roth IRA contributions, make them and be done with it (if it's right for you, talk to your advisor first). If you don't qualify for regular Roth IRA contributions, that's when the Backdoor Roth becomes helpful.

How Does The Backdoor Roth IRA Work?

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