Backdoor Roth IRA Conversion:
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A Backdoor Roth IRA conversion is a strategy used by high-income earners who are ineligible to contribute directly to a Roth IRA. It involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA.
The calculator uses the following formula:
Where:
Explanation: The calculation estimates the tax you'll owe when converting from a traditional IRA to a Roth IRA.
Details: Understanding the tax implications helps in financial planning and determining if a Backdoor Roth conversion makes sense for your situation.
Tips: Enter your planned contribution amount (up to $7,000 for 2025) and your current marginal tax rate as a percentage.
Q1: Who should consider a Backdoor Roth IRA?
A: High-income earners who exceed Roth IRA contribution limits but want Roth IRA benefits.
Q2: Are there income limits for conversions?
A: No, the income limits that apply to Roth IRA contributions don't apply to conversions.
Q3: When do I pay taxes on the conversion?
A: Taxes are due in the year you perform the conversion.
Q4: What's the pro-rata rule?
A: If you have other traditional IRA funds, the conversion may be partially taxable based on the proportion of pre-tax to after-tax dollars.
Q5: Can I undo a Roth conversion?
A: Prior to 2018, you could recharacterize (undo) a Roth conversion, but this is no longer allowed under current tax law.