HOW TO OPEN A BACKDOOR ROTH IRA (Everything Explained!)

In this video, I’m going to show you how to open a backdoor Roth IRA. If you open a backdoor Roth IRA, you will be able to open a Roth IRA even if you make over the IRS income limit.

If you have any questions about a backdoor Roth IRA please let me know and I’ll be sure to get back to you!

None of this is meant to be construed as investment advice, it’s for entertainment purposes only….(read more)

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Opening a Backdoor Roth IRA is a popular strategy for high-income earners who are ineligible to contribute directly to a Roth IRA. In this article, we’ll explain everything you need to know about opening a Backdoor Roth IRA.

What is a Backdoor Roth IRA?

A Backdoor Roth IRA is a strategy that allows individuals with high incomes to make contributions to a Roth IRA even if they are not eligible to do so directly. This strategy involves contributing to a traditional IRA and then converting it to a Roth IRA.

Who is eligible for a Backdoor Roth IRA?

Anyone who is eligible to contribute to a traditional IRA can use the Backdoor Roth IRA strategy. However, it is most commonly used by high-income earners who are not eligible to contribute directly to a Roth IRA due to income limitations.

How do you contribute to a Backdoor Roth IRA?

To contribute to a Backdoor Roth IRA, you will need to follow these steps:

Step 1: Open a traditional IRA

If you don’t already have a traditional IRA, you will need to open one. You can do this through a variety of financial institutions, including banks and brokerages.

Step 2: Make a contribution to your traditional IRA

Once you have opened your traditional IRA, you can make a contribution to it. The IRS sets annual contribution limits, which as of 2021, is $6,000 if you are under the age of 50, and $7,000 if you are over the age of 50.

Step 3: Convert your traditional IRA to a Roth IRA

After making your traditional IRA contribution, you will need to convert it to a Roth IRA. This involves paying taxes on the amount you have contributed to your traditional IRA, as well as any gains it has earned.

It’s important to note that if you have any other traditional IRA accounts, you will need to consider the pro-rata rule when converting to a Roth IRA. The pro-rata rule requires you to pay taxes on a portion of the conversion based on the ratio of your non-deductible contributions to your pre-tax contributions and earnings.

Step 4: Manage your Backdoor Roth IRA

Once you have completed the conversion, you will have a Backdoor Roth IRA. You can manage it like any other Roth IRA, including making contributions (if you are eligible), selecting investments, and taking distributions.

Conclusion

Opening a Backdoor Roth IRA can be a smart financial move for high-income earners who are not eligible to contribute directly to a Roth IRA. It involves contributing to a traditional IRA and then converting it to a Roth IRA. If you are considering a Backdoor Roth IRA, make sure to consult with a financial advisor to ensure it is the right strategy for your financial situation.