Normally, your eligibility to contribute to a Roth IRA is limited based on your income level. However, many higher income taxpayers take advantage of a method commonly called the “backdoor Roth,” so that they can still take advantage of the benefits of a Roth account.
A back door Roth IRA can be completed using the steps below:
- Make your original contribution(s) to a traditional IRA
- Then, immediately convert the traditional IRA contribution(s) to a Roth IRA
It is recommended to make this conversion immediately/soon after the original contribution(s), since you will have to pay tax on any earnings in the account from before the conversion.
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