As of March 2022, the Backdoor Roth IRA is still alive. Therefore, any taxpayer making more than $214,000 in income and is married and filing jointly can make an after-tax Traditional IRA contribution and then potentially do a tax-free Roth IRA conversion.
If you haven't filed your taxes for 2019 yet, you have until April 15, 2020, to complete a backdoor Roth IRA conversion. You can start making contributions for each new tax year beginning on January 1.
The backdoor Roth IRA strategy is still currently viable, but that may change at any time in 2022. Under the provisions of the Build Back Better bill, which passed the House of Representatives in 2021, high-income taxpayers would be prevented from making Roth conversions.
The IRA contribution limit for 2021–22 is $6,000 per person, or $7,000 if the account owner is 50 or older. So if you want to open an account and then use the backdoor IRA method to convert the account to a Roth IRA, that's the maximum you can contribute for those tax years.
IRA Conversions — You must complete IRA conversions (from a traditional to a Roth) by Dec. 31 of the calendar year.
As of March 2022, the Backdoor Roth IRA is still alive. Therefore, any taxpayer making more than $214,000 in income and is married and filing jointly can make an after-tax Traditional IRA contribution and then potentially do a tax-free Roth IRA conversion.
The backdoor Roth IRA strategy is still currently viable, but that may change at any time in 2022. Under the provisions of the Build Back Better bill, which passed the House of Representatives in 2021, high-income taxpayers would be prevented from making Roth conversions.
You have until April 18th, 2022 to make contributions for 2021. You have to recharacterize a 2021 contribution by the due date for filing your 2021 tax return (including extensions).
You will only enter your contribution on your 2021 tax return. The conversion will be entered on your 2022 tax return when you get the 2022 Form 1099-R. You will have a basis on your 2021 Form 8606 line 14 to carry forward to 2022.
Is there a deadline to convert? Yes, the deadline is December 31 of the current year. A conversion of after-tax amounts is not included in gross income. Any before-tax portion converted will be included in your gross income for the conversion tax year.
The mega backdoor Roth allows you to save a maximum of $61,000 in your 401(k) in 2022. How does this add up? The regular 401(k) contribution for 2022 is $20,500 ($27,000 for those 50 and older) and you can put an additional $40,500 of after-tax dollars into your 401(k) account assuming you don't get an employer match.
2. The back-door Roth IRA won't work if your client is 70 ½ years old or older. That's because there are age limits for making traditional IRA contributions. You cannot make a traditional IRA contribution (deductible or nondeductible) for the year you turn age 70½ or later years.
You can't reverse your decision
Today, recharacterization of converted Roth funds is prohibited by the Tax Cuts and Jobs Act. In other words, there's no going back once the conversion is done.
If you made a backdoor Roth contribution in the prior year, your custodian will provide you a Form 5498 to report the IRA contributions and a Form 1099-R to report Roth conversions.
While the legislation has not become law, the Build Back Better Act was set to eliminate the backdoor Roth IRA strategy as of Jan. 1, 2022.
Backdoor Roth IRA Conversion Deadline
It can take place the next day or even the same day as the contribution. I don't recommend it, but you can wait months, years, or even decades between the contribution and the conversion step. There is no deadline on Roth conversions.
In 2022, I made my 10th pair of “backdoor Roth” IRA contributions with Vanguard. It's a great way for high-income professionals to contribute to a Roth IRA when earning “too much” to contribute directly to a Roth IRA.
Is a backdoor Roth IRA worth it? It really depends on your individual circumstances. Most people won't make more in retirement than while working, though, so their tax rate in retirement likely will be lower than while working. As a result, doing a Roth IRA conversion is probably not worth it for most people.
It's a totally legal loophole. At its core, a backdoor Roth IRA is a simple conversion: You put money into a traditional IRA or 401(k), then convert it to a Roth IRA. Depending on your personal tax strategy, this could be a win-win situation, especially if you predict your tax rate will be higher in retirement.
How much you can contribute is calculated using the following formula: In 2021: Max Mega Backdoor Roth contributions = $58,000 - (employee 401(k) contributions) - (employer match contributions) In 2022: Max Mega Backdoor Roth contributions = $61,000 - (employee 401(k) contributions) - (employer match contributions)
If your federal income tax bracket is 32% or higher, doing a Backdoor Roth IRA is a terrible, terrible idea. It is highly unlikely you will be making more money, and thereby being in a higher tax bracket in retirement! It's nice to have tax-free money you can withdraw from in retirement.
The IRS will charge you a 6% penalty tax on the excess amount for each year in which you don't take action to correct the error. For example, if you contributed $1,000 more than you were allowed, you'd owe $60 each year until you correct the mistake.
Backdoor and mega backdoor Roth
In a backdoor Roth, investors make a non-deductible contribution to a traditional IRA and then quickly convert to a Roth IRA. Once the money is in a Roth IRA, it's tax-free when taken out (if you meet the holding period and age requirements).