Back Door Roth Ira Conversion

A roth ira conversion lets you turn a traditional ira into a roth ira. Since the income limits on roth conversions were removed in 2010 higher income individuals who are not eligible to make a roth ira contribution have been able to make an indirect backdoor roth contribution instead by simply contributing to a non deductible ira which can always be done regardless of income and converting it shortly thereafter. In order to prepare myself for a backdoor roth conversion i recently rolled over all my non roth ira accounts to my current employer s 401 k to avoid the pro rata rule as well as contributed my annual non deductible 5500 to a tira.

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The conversion is reported on form 8606 pdf nondeductible iras.

Back door roth ira conversion.

Roth ira conversions are also known as backdoor roth iras. Return to iras faqs. A backdoor roth ira lets you convert your traditional ira to a roth even if your income is too high to open a roth ira the regular way. A method that taxpayers can use to place retirement savings in a roth ira even if their income is higher than the maximum the irs allows for regular roth ira contributions.

There s no upfront tax break with a roth ira but contributions. Therefore you shouldn t ask your ira custodian or trustee for a backdoor roth ira contribution. The backdoor roth ira is one of those options but there are state and federal tax pitfalls to converting money from a traditional ira or a qualified retirement account such as a 401 k to a. See publication 590 a contributions to individual retirement arrangements iras for more information.

The backdoor roth ira contribution is a strategy and not a product or a type of ira contribution. A conversion to a roth ira results in taxation of any untaxed amounts in the traditional ira. For example if your traditional ira balance is 20 000 after rolling over money from a 401 k and 2 000 is from nondeductible contributions only 10 of any conversion to a roth will be tax free.

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