Roth IRA income limits got you down? Here’s how to get into a Roth IRA — even if your income is too high.

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A backdoor Roth IRA is a strategy that allows individuals to contribute to a Roth IRA even if they exceed the income limits set by the IRS. This can be a valuable tool for high-income earners who want to take advantage of the benefits of a Roth IRA, such as tax-free growth and tax-free withdrawals in retirement. If you’re interested in setting up a backdoor Roth IRA, here’s how you can do it:

1. Understand the basics of a Roth IRA: Before diving into a backdoor Roth IRA, it’s important to understand the basics of a Roth IRA. A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars and enjoy tax-free growth on your investments. Unlike a traditional IRA, withdrawals from a Roth IRA in retirement are tax-free.

2. Check your income: The first step in setting up a backdoor Roth IRA is to make sure you exceed the income limits set by the IRS for direct contributions to a Roth IRA. As of 2021, the income limits for contributing to a Roth IRA are $140,000 for single filers and $208,000 for married couples filing jointly. If your income exceeds these limits, you may be eligible for a backdoor Roth IRA.

3. Open a traditional IRA: To initiate a backdoor Roth IRA, you’ll first need to open a traditional IRA. You can do this through a brokerage firm or financial institution of your choice. Make sure to choose a reputable institution that offers low fees and a variety of investment options.

4. Make a nondeductible contribution to your traditional IRA: After opening a traditional IRA, you’ll need to make a nondeductible contribution. This means contributing money that has already been taxed. For 2021, the maximum contribution to an IRA is $6,000 ($7,000 for those age 50 and older). Be sure to indicate that your contribution is nondeductible when making the deposit.

5. Convert your traditional IRA to a Roth IRA: The final step in setting up a backdoor Roth IRA is to convert your traditional IRA to a Roth IRA. This can be done by contacting your financial institution and requesting a conversion. Keep in mind that you’ll need to pay taxes on any earnings in the traditional IRA at the time of the conversion.

Setting up a backdoor Roth IRA can be a smart strategy for high-income earners looking to take advantage of the benefits of a Roth IRA. By following these steps, you can create a tax-efficient retirement savings vehicle that can help you build wealth for the future. If you’re unsure about how to set up a backdoor Roth IRA, consider consulting with a financial advisor to ensure you’re making the best decisions for your financial situation.