From Yahoo Finance: 2025-06-03 09:46:00

In 2025, income limits for contributing to a Roth IRA are set at $165,000 for single filers and $246,000 for joint filers. High-income households can use a “backdoor Roth conversion” by contributing to a pre-tax portfolio, then converting it to a Roth IRA for untaxed growth. Consult a financial advisor for personalized advice.

Roth IRAs can be funded through contributions or conversions. Contributions have strict limits, while conversions involve moving money from a pre-tax portfolio to a Roth IRA. The backdoor Roth strategy allows high-income households to fund a Roth IRA despite income limits. Roth IRAs offer untaxed growth and are not subject to required minimum distributions.

A Roth conversion involves paying taxes on the amount transferred to a Roth IRA. The tax rate depends on your income level. Conversions can impact your federal, state, and local income taxes, as well as eligibility for government programs and aid. Consider the five-year rule and plan for retirement when deciding on a Roth conversion.

Roth conversions work best when done at a younger age, at a lower tax rate than expected in retirement, and with cash on hand to pay conversion taxes. Conversely, conversions are less favorable near retirement, at a higher tax rate than expected in retirement, and when using retirement investment capital to pay conversion taxes.

Deciding on a Roth conversion depends on factors like when you plan to retire and your expected income in retirement. Consult a financial advisor to assess the potential tax savings and long-term benefits. Consider the trade-offs between current taxes, opportunity costs, and untaxed returns when evaluating a Roth conversion.



Read more at Yahoo Finance: We Will Make $360k Combined This Year. Can We Use a Backdoor Roth Strategy to Reduce Our Taxes?