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Backdoor Roth IRA: Pros, Cons, and Examples

If your income exceeds the limits to contribute directly to a Roth IRA, you may have heard about the so-called ‘Backdoor Roth IRA,’ which allows traditional IRA conversions to Roth IRA regardless of income. This allows investors to continue funding a Roth IRA despite reporting a higher income.

This loophole was set to be closed when the original Build Back Better Act was passed by the House in November 2021. As such, many of my fellow tax and financial planning peers have cautioned clients not to plan on funding their Roth IRA through the backdoor anymore, assuming that the act would eventually pass and that income limits would be placed on conversions. There was also speculation that this limit would be retroactive to the beginning of 2022, making backdoor Roth IRA contributions a thing of tax-avoidance lore.

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