What is a Backdoor Roth conversion?
A Backdoor Roth conversion is a tax strategy that enables high-income individuals to contribute to Roth IRAs despite exceeding the income limits for direct Roth IRA contributions. The process involves making a non-deductible contribution to a traditional IRA and then converting those funds to a Roth IRA. This strategy is entirely legal and leverages the fact that while Roth IRA contributions have income limits, traditional IRA contributions and Roth conversions do not have the same restrictions. The conversion is treated as a taxable event, but since the contribution was made with after-tax dollars, the tax impact is minimized when executed properly. This technique provides access to tax-free growth and withdrawals in retirement for wealthy individuals, and often complements Traditional 401k individual strategies for comprehensive retirement planning.
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