what is a backdoor roth ira 
a backdoor roth ira is a strategy rather than an official type of individual retirement account it is a technique used by high income earners who exceed roth ira income limits to convert their traditional ira to a roth ira the backdoor roth ira strategy is not a tax dodge when you transfer the assets of a traditional ira to a roth ira you owe taxes on any funds the principal earnings and appreciation that have not been taxed previously if the ira was funded solely with tax deductible contributions then the entire value of the transferred assets is taxed 1 as with any roth ira you should owe no further taxes when you make withdrawals if you follow the rules investopedia jessica olahunderstanding backdoor roth irasa roth ira allows taxpayers to set aside a few thousand dollars from their annual earnings in a retirement savings account the contributed money is after tax dollars meaning the funds are earnings that have been taxed in the year when they are contributed to the roth ira 2a roth ira differs from a traditional ira the traditional ira gives the earner an immediate tax break because they can take a tax deduction for their contributions in the year they are made and no taxes are due until the money is withdrawn when withdrawals are made usually after retirement the account holder will owe taxes on both the dollars invested and their earnings 3the problem for high income taxpayers is that individuals who earn above a certain amount aren t allowed to open or fund roth iras if your modified adjusted gross income magi exceeds statutory ceilings then the law starts phasing out the amount that you can contribute which means you cannot participate at all the limits are as follows traditional iras don t have income ceilings for participation and since 2010 the internal revenue service irs hasn t had income limits that restrict who can convert a traditional ira to a roth ira as a result the backdoor roth ira has become a tax planning opportunity for higher income taxpayers who ordinarily couldn t contribute to a roth ira 35the way that backdoor roth iras work has changed over the years although ira funds that were transferred to roth iras in pre 2018 conversions could be recharacterized as traditional ira contributions before 2018 the tax cuts and jobs act tcja of 2017 banned the strategy of recharacterizing converted funds in a roth ira back to a traditional ira contribution in conversions enacted after dec 31 2017 1some taxpayers who are ineligible to deduct ira contributions use after tax dollars to fund a traditional ira and pay taxes again when withdrawing from the account just to have an ira 