Search
Close this search box.
Home / Articles / Opening the “back door” to a Roth IRA

Opening the “back door” to a Roth IRA

June 25, 2015

Share:

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute:

  • For married taxpayers filing jointly, the 2015 phaseout range is $183,000–$193,000.
  • For single and head-of-household taxpayers, the 2015 phaseout range is $116,000–$131,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

© 2015

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

Construction Business Owners: Two Accounting Mistakes to Avoid

Article

2 Min Read

6 Fundamentals of Not-For-Profit Financial Management

Article

2 Min Read

Not-for-Profits and Gift Card Donations: Bookkeeping Best Practices

Article

2 Min Read

Ohio State Auditor Warns to Stay Vigilant Amidst Rise in BEC Schemes

Article

2 Min Read

Spotting Charity Scams: How to Give Safely

Article

2 Min Read

Grants and Organizational Budgets for Not-for-Profits

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.

  • Hidden
  • This field is for validation purposes and should be left unchanged.