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If you’re a high earner, you may not think a Roth IRA is an option for you. After all, traditional Roth IRAs have income limits that can prevent high earners from contributing. However, there is a method called the Backdoor Roth IRA that can allow high earners to take advantage of the benefits of a Roth IRA.

So, what exactly is a Backdoor Roth IRA? Essentially, it involves contributing to a traditional IRA and then converting it to a Roth IRA. Since there are no income limits on the conversion, this allows high earners to still benefit from the tax-free growth and withdrawals that come with a Roth IRA.

Here’s how it works: First, you contribute to a traditional IRA. There are no income limits on traditional IRA contributions, so this step is open to anyone. However, it’s important to note that if you also have a traditional IRA that you’ve made pre-tax contributions to, the conversion can trigger taxes on the untaxed portion of the conversion. This is known as the pro-rata rule, and it can complicate things for some individuals.

Once you’ve made your contribution to the traditional IRA, you’ll want to convert it to a Roth IRA. This can generally be done through your brokerage account, although it’s important to note that there may be fees involved in the conversion.

From there, you can enjoy the benefits of tax-free growth and withdrawals that come with a Roth IRA. This can be especially useful for high earners who anticipate being in a higher tax bracket in retirement than they are currently. By paying taxes on the converted amount now, they can avoid paying taxes on their withdrawals in retirement.

Of course, it’s important to note that there are potential downsides to the Backdoor Roth IRA strategy. As mentioned, the pro-rata rule can create complications if you also have a traditional IRA with untaxed contributions. Additionally, since the strategy involves making a contribution to a traditional IRA before converting it, it may not be as straightforward as a traditional Roth IRA contribution.

However, for high earners looking to take advantage of the benefits of a Roth IRA, the Backdoor Roth IRA strategy can be a useful workaround. By doing some research and consulting with a financial advisor, you can determine if this strategy is right for you.