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ROTH IRAs: Going through the Back Door

By LouAnn Schulfer,  AWMA®, AIF®
Accredited Wealth Management Advisor®
Accredited Investment Fiduciary

Higher income earners are often disappointed when they realize they can not contribute to a ROTH IRA.  After all, ROTH accounts can be a great way to grow money and eventually take distributions on a tax-free basis (applicable rules must be adhered to).  Fortunately, it’s not the end of the road, as anyone of any income level can still get money into ROTH accounts using different strategies.

Converting money from an IRA to a ROTH IRA may be done by anyone, anytime, on an unlimited basis. You’ll pay ordinary income tax on the amount converted in the tax year of the conversion, but it’s an alternative to a contribution.  Some 401(k) plans have ROTH options inside of them, which are not limited merely by your income.

An intriguing strategy that works well for some, is what has been nick-named a “backdoor ROTH IRA”.  Essentially, if your income is too high for a ROTH contribution, you may make a non-deductible contribution to a traditional IRA and immediately convert to a ROTH IRA.  Since you have already paid taxes on the money (because you did not take the deduction), you can “backdoor” the transfer to a ROTH, only paying taxes on the growth that’s moved over, if there is any.  Be sure that you know all the rules and consequences before you open the back door.  For example, there are complications if you have other retirement money in addition to the newly non-deductible IRA contribution. Additionally, we’ve run projections for many clients who are likely better off making deductible contributions before retirement versus paying the taxes now.  Options exist for your ROTH IRAs, including a back door.

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at 715) 343-9600 or

Securities and advisory services offered through LPL Financial,a Registered Investment Advisor.  Member FINRA/SIPC.

The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.