The Backdoor Roth IRA: A Strategy for Tax-Advantaged Savings for High Earners?

Aug 23

For high earners that have contributed the maximum to tax-deferred accounts such as 401(k)s, additional savings that can grow tax-free may make sense, even if they don’t reduce taxes in the year in which you contribute. The Roth IRA isn’t usually associated with high earners, but there is a way to provide the advantages of tax-free growth and tax-free withdrawals in retirement, even if you are over the income limits. An IRS loophole that allows for investment account conversions means that even those who exceed the income limits for a Roth IRA can convert traditional IRA contributions into a Roth IRA. 

Using a backdoor Roth IRA strategy can be a powerful way to create additional retirement savings, but first, let’s understand what it looks like and when it makes sense to use it.

The Advantages of a Roth IRA

Since you pay taxes on the funds before they are contributed... ...