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7 Simple Steps to Safely Conduct Backdoor Roth IRA Contribution

8/29/2015

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Q. I heard there are risks of doing backdoor Roth IRA contribution for high income earners.  How to do backdoor Roth IRA contribution safely?

A.
While backdoor Roth IRA contribution is very attractive for high earners.  We have explained in our previous blog posts that there are two complications, with one of them as a potential risk if you were caught by IRS during an audit.

To learn more details about the complications, you can read the blog posts here and here.

To minimize your risk of doing back door Roth IRA contribution, here is a simple step procedure to follow:
  1. Make sure there are no other pre-tax IRAs
  2. If there is any, roll over the existing pre-tax IRAs to a 401(k) (if available) to avoid the IRA aggregation rule
  3. Contribute to non-deductible IRA (you need to have income)
  4. Invest funds in the non-deductible IRA
  5. Keep invested for 1 year (or if you're more aggressive follow the "one-statement" rule)
  6. Convert to Roth IRA
  7. Repeat steps 2-5 annually as desired!


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