In this video, John Bowens explains how to make a backdoor Roth IRA contribution and what factors into how much you can contribute and what is taxable.

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A backdoor Roth IRA contribution is an industry term that refers to a contribution to a traditional IRA that you immediately convert over to a Roth IRA.

Modified adjusted gross income (MAGI) is adjusted gross income with certain exclusions added. Your MAGI will determine whether you can contribute directly to your Roth IRA or if you will need to make a backdoor contribution.

Income restrictions will depend on if you file taxes as single, married filing jointly, or married filing separately.

If you are a single filer:
– MAGI below $129,000 means you can make a full contribution to your Roth IRA
– MAGI between $129,000 and $144,000 means you can make a partial contribution
– MAGI above $144,000 means you cannot make a contribution

If you are married filing jointly:
– MAGI below $204,000 means you can make a full contribution
– MAGI between $204,000 and $214,000 means you can make a partial contribution
– MAGI over $214,000 means you cannot make a contribution

If you are married filing separately:
– MAGI under $10,000 means you can make a full contribution
– MAGI over $10,000 means you cannot make a contribution

Non-deductable IRA contributions are contributions to a traditional IRA that do not provide tax deductions.

The Pro Rata Rule is the portion of your contribution that is non-deductible and is not taxable in a traditional IRA. The Pro Rata Rule also depends on how you file taxes and your MAGI as well as whether you or your spouse have a retirement plan through your employer.

Single filer:
– MAGI below $68,000 means you can take a full deduction
– MAGI between $68,000 and $78,000 means you can take a partial deduction
– MAGI above $78,000 means you cannot take a deduction

Married filing jointly where you have an employer retirement plan:
– MAGI below $109,000 means you can take a full deduction
– MAGI between $109,000 and $129,000 means you can take a partial deduction
– MAGI over $129,000 means you cannot take a deduction

Married filing jointly where your spouse has an employer retirement plan:
– MAGI below $204,000 means you can take a full deduction
– MAGI between $204,000 and $214,000 means you can take a partial deduction
– MAGI over $214,000 means you cannot take a deduction

Married filing separately:
– MAGI below $10,000 means you can take a full deduction
– MAGI over $10,000 means you cannot take a deduction

The Pro Rate Rule applies to people with existing traditional IRAs and will tell you what is and isn’t taxable.

If you have a Roth-component to your employer retirement plan, there are no MAGI restrictions.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional….(read more)

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