Backdoor Roth IRA Wizard

A backdoor Roth IRA is a legal strategy that allows high-income earners to contribute to a Roth IRA despite exceeding the income limits. You contribute to a Traditional IRA (non-deductible), then immediately convert it to a Roth IRA. The result is the same as a direct Roth contribution, but it bypasses the income restrictions.

The pro-rata rule says that when you convert Traditional IRA dollars to Roth, the IRS looks at ALL your Traditional, SEP, and SIMPLE IRAs combined. If you have pre-tax money in any of these accounts, a portion of your conversion will be taxable. For example, if you have $93,000 in pre-tax Traditional IRA and contribute $7,000 for backdoor Roth, 93% of your conversion will be taxed. The solution: roll your pre-tax IRA into your 401(k) first (if allowed).

Yes, 100% legal! The IRS explicitly allows non-deductible Traditional IRA contributions and conversions to Roth. This strategy has been blessed by Congress and confirmed in IRS Notice 2014-54. As long as you file Form 8606 correctly and follow the rules, there's no legal issue. However, there have been proposals to eliminate it, so take advantage while you can.

Convert immediately (within 1-2 business days). The longer you wait, the more your contribution might earn, and any earnings are taxable upon conversion. By converting quickly, you minimize taxable gains. Don't worry about the "step transaction doctrine" - the IRS has confirmed that immediate conversion is fine.

Yes! Each spouse can do their own backdoor Roth IRA ($7,000 each, or $8,000 if 50+), for a total of $14,000-$16,000 per year. Even if one spouse doesn't work, they can still contribute via a "spousal IRA" as long as the working spouse has sufficient earned income. IRAs are always individual accounts, so each spouse maintains separate accounts.

Yes, backdoor Roth is an annual strategy. Every year (usually in January), you contribute to Traditional IRA, then convert to Roth. You'll file Form 8606 with each year's tax return. The good news: after you do it once, it becomes routine. Many brokerages let you set up automatic conversions. Think of it as a yearly financial hygiene task, like maxing your 401(k).