It is the speakeasy of the retirement funding landscape. Few people know about this technique, but those who are “in the know” can take advantage of this mechanism to boost their retirement savings. A fee-only financial advisor can help you navigate these murky waters and understand your own financial situation better.

First of all, it’s important to know what makes a Roth IRA so special that you’d try a back door if the front door is locked. A Roth IRA is a retirement account funded with after tax dollars, which means you contribute to this type of account outside of your paycheck (unlike most employer plans). Once the money is invested inside the Roth IRA, it continues to grow tax-free. You can buy and sell stocks within the account and owe no capital gains. Then, and here is a beautiful thing, when you take the money out of the account in retirement, you pay no federal taxes whatsoever on your distributions.

For a look at how billionaire investors take advantage of this type of account, read this. But you don’t have to be a billionaire to invest in a Roth IRA. In fact, it was designed for everyday investors. For that reason, there are income levels to contributions. But, even if you are a high-earner, there’s a way to get your money into this tax-advantaged account. Enter the backdoor Roth IRA.

I won’t go into details about the how-to of the process. Investopedia has a great explanation about the mechanism for completing a Backdoor Roth.

So, is a backdoor Roth really legal?

  • For now, but laws can change! In fact, there is a bill in Congress that may phase out or limit this for certain savers, but nothing is official.
  • This is not legal or investment advice. You should always consult a CPA or trusted, licensed tax advisor about implementation of this or any financial strategy.

Is this for me?

  • If you are a high-income earner who can’t contribute directly to a Roth IRA, you may be able to contribute indirectly via a backdoor Roth.
  • It may be for you if you want to avoid required minimum distributions (RMDs) in retirement.
  • It may be for you if you want to avoid paying income taxes on distributions in the future.
  • It may be for you if you don’t expect to need the money invested in the account for the next 5 years.
  • It may be for you if you have a trusted financial advisor who can help you with the process.

Talk to your fiduciary financial advisor to see if this strategy fits into your overall financial plan. As always, we are here to have a conversation.




U.S. Congress. “Build Back Better Act.”