Mega Backdoor Roth IRA: How to Set Up Safely

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.

What Is an Individual Retirement Account (IRA)?

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).

Roth IRA Versus Traditional IRA

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).

Backdoor Roth IRA

The backdoor Roth IRA allows high-income earners to transfer funds from a traditional IRA to a Roth IRA.

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