What is a Backdoor Roth IRA?
A backdoor Roth IRA is a conversion method used by people that are not eligible to contribute to a Roth IRA. Most people are familiar with a Roth Ira. When you fund a Roth Ira, you are taking money out of your bank account that has already been taxed and placing it in this new IRA. The limit is $5500 ($6500 if 50 or over) but in order to do that, you need to have income below a threshold. For 2017, it begins phasing out at $118000 for singles. For a couple, the threshold is $186,000. Which means if you are making more than that, Congress says you aren’t allowed to put money in to a Roth IRA. The backdoor is a strategy for people that are over that limit. So, if you make too much money to contribute to a Roth IRA, there is a rule that says you can contribute money to what is called a non-deductible IRA. It’s a type of IRA where you don’t get a tax deduction. There are no income limits for contributing to this type of IRA. There is also a rule that says that y...