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Backdoor Roth IRA

Backdoor Roth IRA

January 22, 2024

Updated 1/22/2024

One of the most powerful strategies for physicians is the Roth IRA. However, when your income exceeds the levels below, you start to lose the ability to make Roth IRA contributions.

  • 2024 income limits
    • $146,000 single tax filer
    • $230,000 married filing joint
    • $10,000 married filing separate

That's when you need to switch to the backdoor Roth IRA.

Here's how it works.  First, each spouse contributes to a traditional IRA. Next, the IRA contributions are converted to Roth IRAs. The entire strategy is tax neutral and can be repeated each year until both spouses are fully retired. Plus, this strategy is available even if you are contributing the maximum to a 401(k) or 403(b).

It seems like a loophole, right? Well, it’s been blessed by Congress. “When Congress says what its intent is, that’s it. They absolutely, clearly say it’s okay. You can make a contribution to a nondeductible IRA and convert it to a Roth,” says CPA and IRA expert Ed Slott who publishes the IRA Advisor Newsletter.

So how much is this worth? A married couple starting at age 30 and retiring at 60 could have $7.089 million in their Roth IRAs by age 75. If that same investment grew in a tax deferred account, it would be worth $2.217 million less due to taxes!

Remember to note your IRA contribution in your tax file.  The 5498 supporting tax document showing your IRA contribution won't arrive until May of the following year.  That's because investors have until April 15th to make their prior year IRA contributions.

Contact us to get started with your own backdoor Roth IRA.

* If the IRA owner has an existing IRA balance (SIMPLE, SEP, or traditional IRA), those funds need to be rolled to a 403(b) or 401(k) before 12/31 of the conversion year.  Only the after-tax IRA contribution should be converted. If the pretax IRA balance is not rolled to a 403(b) or 401(k), a pro-rata portion of pretax and after-tax dollars are included in the conversion.