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Backdoor Roth strategy targets Roth access for high-income households
A backdoor Roth uses a traditional IRA conversion to a Roth IRA, since rollovers do not carry Roth income limits, but investors must pay taxes upfront on the converted amount.
High-income households who are above standard Roth IRA income thresholds can still access Roth IRA benefits through a backdoor Roth strategy, according to guidance discussed by Yahoo Finance and SmartAsset.
The strategy works by opening a traditional IRA, contributing to it, and then converting those funds to a Roth IRA, typically through a lump sum or periodic contributions.
Because the IRS does not place income limits on Roth conversions, the approach can allow high earners to build and fund a Roth IRA even when they would otherwise be locked out of making direct Roth contributions.
Whether the method reduces taxes depends on how current tax rates compare with expected taxes in retirement, as Yahoo Finance notes that Roth funding requires paying taxes upfront on the converted money.