If you meet the eligibility requirements, you could stash an extra $41,500 for retirement in a Roth IRA. However, it’s complicated, and mistakes can be costly.
The backdoor option was designed for high-income earners to make a regular Roth contribution using tax-deferred earnings.
An individual retirement account (IRA) is a savings and investment account with tax advantages.
You can open an IRA through a bank, investment brokerage, or employer. Through employers, IRAs are 401k, Roth 401k, 403b, Roth 403b, Thrift Savings Plan, or SEP (Simplified employee pension).
A Roth IRA is an individual retirement account (IRA) funded with after-tax dollars. It allows funds to grow over time without incurring taxes on the profits.
Unfortunately, high-income earners can’t directly contribute to a Roth IRA. Maximum contributions are limited to individuals who earn less than $129,000 (single) and $204,000 (married).
The backdoor Roth IRA allows high-income earners to transfer funds from a traditional IRA to a Roth IRA.