Feb 14 – Backdoor Roth what it is and why you may need one.

So we already covered the Benefits of having a Roth IRA in this article. But a Roth IRA is only available up to a certain income. What happens if you are above this?

Well you are in luck there is a back door way you can still have a Roth IRA and the benefits that come with it. However its not straight forward. Below I will cover how to do this.

Requirements and Prerequisites

Firstly to this this you need to earn more than the requirements for contributing to a Roth IRA directly.

Then you need to Open a Traditional IRA and Roth IRA (Ideally this would be at the same place). I use E*Trade but you can use other places.

Next Steps

Once you have both your traditional IRA and your Roth IRA. You make your normal contributions to your traditional IRA, In my case this is 6k per year. You then do a Traditional IRA to Roth IRA conversion. If you have not invested the funds whilst it was in your traditional IRA then you will not pay taxes when you convert it. But if you have earnings in your traditional IRA then you will need to pay taxes when you convert it.

You can convert multiple times a year. Once the funds are moved to your Roth IRA then you can buy whatever funds you want to and earnings will be tax free and removals are also not taxed unlike traditional IRA’s.

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2 Replies to “Feb 14 – Backdoor Roth what it is and why you may need one.”

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