In short
A backdoor Roth individual retirement account (IRA) contribution is a nondeductible contribution to a traditional account that is then converted to a Roth account, a way around the income limit on direct Roth contributions.
Key takeaways
- Under the pro rata rule, the taxable part of the conversion depends on all of the person's pre-tax individual retirement account balances at year-end, including employer-sponsored ones.
- The nondeductible basis is tracked on Form 8606.
- Conversions can't be undone (recharacterized).
Where it's tested
TCP: Retirement Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer has $90,000 in traditional IRAs, of which $9,000 represents nondeductible (after-tax) contributions. The taxpayer converts $10,000 to a Roth IRA. How much of the conversion is taxable?