A backdoor Roth IRA is a way for people with high incomes to sidestep the Roth’s income limits.
Basically, a backdoor Roth IRA boils down to some fancy administrative work: You put money in a traditional IRA, convert the account to a Roth IRA, pay some taxes and, lo and behold, you’re done. Even though you didn’t qualify for a Roth IRA to start, you get to sneak in the back door anyway.
Why would you want a Roth IRA at all, you ask? Mainly because your money grows tax-free. That’s a pretty sweet perk when it comes time to start taking your money out. (If you’re eager to get going, check out our top picks for best Roth IRA providers.)
Here’s the thing, though: High earners can’t contribute to Roth IRAs. For 2018, the government allows only those people with adjusted gross incomes below $199,000 (married filing jointly) or $135,000 (single) in the front door. (Use our calculator to find out your Roth IRA contribution limit.)