If you’re single earning near $125,000, or married filing jointly with a combined income close to $198,000, your ability to contribute directly to a Roth IRA phases out. But that doesn’t mean you’re out of options. Enter the Backdoor Roth IRA, a strategy that allows high earners to enjoy the benefits of tax-free growth and withdrawals.

How Does a Backdoor Roth IRA Work?

It’s simple:

1. Contribute to a Traditional IRA.

2. Convert that contribution to a Roth IRA.

Just contact your brokerage to handle the conversion. This process bypasses the income limits that restrict direct Roth contributions.

Why Use a Backdoor Roth IRA?

The biggest perk? Tax-free withdrawals in retirement. Unlike a Traditional IRA, you won’t pay taxes on qualified distributions from a Roth IRA. Plus, your money grows tax-free over time.

Final Thoughts:

The Backdoor Roth IRA is a smart way for high earners to keep building tax-advantaged retirement savings. Consult your financial advisor or tax professional to ensure the strategy fits your financial goals and to navigate any tax implications from the conversion.