I earn $200K per year and will likely retire in a higher tax bracket. Is a backdoor Roth IRA a good strategy for me?

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Chris Clark

Wed, Mar 26, 2025, 4:30 AM 4 min read

Nothing beats the assurance of knowing your fiscal aboriginal is secure, particularly if you're a high-income earner eyeing a comfy retirement. Imagine pouring currency into a status relationship and watching it go the nest ovum you need. Sounds fantastic, right?

That’s agelong been the committedness of the Roth IRA, which dissimilar 401(k) funds tin beryllium tapped tax-free successful retirement. But there’s a catch: the IRS whitethorn not fto you bash it, astatine slightest not straight with a Roth IRA.

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Picture this scenario: you’re single, gain a comfy $200,000 annually and meticulously program for retirement. You cognize you'll apt discontinue successful an adjacent higher taxation bracket, truthful you're determined to unafraid those juicy, tax-free Roth withdrawals.

But here’s the harsh truth: astatine $200k per year, Uncle Sam slams the doorway shut, preventing you from contributing directly. Thankfully, there’s a workaround: the slyly-named backdoor Roth IRA.

If you’re a precocious earner, Roth IRAs contiguous immoderate pugnacious income restrictions. For 2025, azygous filers earning much than $150,000 annually can't straight contribute. But there's a loophole: first, lend to a accepted IRA, past person those funds into a Roth IRA.

Unlike Roth IRAs, accepted IRAs person nary income ceiling. Everyone tin max retired contributions ($7,000, oregon $8,000 if you're 50 oregon older). You simply marque a nondeductible publication to your accepted IRA, past person it into a Roth. Why does this work? Because Roth conversions person nary income oregon publication limits.

Just similar that, your wealth present enjoys tax-free maturation wrong your Roth.

However, don’t place the IRS’s pro-rata rule. If your accepted IRA contains pre-tax contributions and you person those, expect Uncle Sam to taxation you. The cardinal to occurrence is converting lone after-tax contributions.

Yes, the word "backdoor Roth" mightiness dependable a small sneaky, but remainder assured it’s wholly ineligible — arsenic agelong arsenic you meticulously study everything. All nondeductible contributions and Roth conversions indispensable look connected your taxation returns. Sloppy reporting could gully unwanted IRS scrutiny, perchance coating you arsenic a taxation evader.