My guest, Joe Doerrer, with Mezzasalma Advisors goes through the entire process of creating a Backdoor Roth IRA.  If you make above the income limits to simply contribute straight to a Roth ($161k single/$240k married jointly), this is something to at least consider, but obviously everyone’s situation is unique.

Check out the full episode at either link below:
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Disclaimer: The information provided is for general informational purposes only and should not be construed as financial, legal, or tax advice. Always consult with a qualified professional before making any financial, legal, or tax-related decisions….(read more)

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A Backdoor Roth IRA is a strategy that high-income earners can utilize to contribute to a Roth IRA, even if they are above the income limits that the IRS sets for direct Roth IRA contributions. This strategy involves making non-deductible contributions to a Traditional IRA and then converting those funds to a Roth IRA.

Here is a step-by-step guide on how to execute a Backdoor Roth IRA:

Step 1: Check income limits
Before proceeding with a Backdoor Roth IRA, it is important to confirm that your income exceeds the limits set by the IRS for direct Roth IRA contributions. As of 2021, individuals with a modified adjusted gross income (MAGI) above $140,000 (single filers) or $208,000 (married filers) are ineligible for direct Roth IRA contributions.

Step 2: Open a Traditional IRA
If you meet the income requirements, the next step is to open a Traditional IRA account. Contributions to a Traditional IRA are tax-deductible, but since you will be utilizing the Backdoor Roth IRA strategy, you will be making non-deductible contributions.

Step 3: Make non-deductible contributions
After opening a Traditional IRA, make your non-deductible contributions. The maximum annual contribution for 2021 and 2022 is $6,000 for individuals under 50 years old and $7,000 for those 50 and older.

Step 4: Convert to a Roth IRA
Once you have made your contributions to the Traditional IRA, you can proceed with the conversion to a Roth IRA. You can do this by contacting your IRA provider and requesting a Roth IRA conversion. Keep in mind that you will have to pay taxes on any earnings that have accrued in the Traditional IRA.

Step 5: Report the conversion
When you file your taxes for the year in which you made the conversion, you will need to report it on IRS Form 8606. This form will help ensure that the IRS does not double-tax your contributions when you eventually withdraw funds from your Roth IRA in retirement.

It is essential to consult with a financial advisor or tax professional before proceeding with a Backdoor Roth IRA to ensure you understand all the implications and tax considerations. Additionally, it is crucial to stay informed about any changes to tax laws and income limits that could affect your ability to utilize this strategy effectively.