Key Takeaways
- In retirement, Roth IRAs aren’t subject to RMDs and withdrawals are generally tax-free. Certain high earners, however, are ineligible to contribute to a Roth directly.
- There is no income limit for converting an existing IRA to a Roth IRA, but the converted amount is generally taxed as ordinary income.
- To implement a “backdoor” Roth strategy, make a post-tax contribution to a traditional IRA and immediately convert it to a Roth.
- In a “mega backdoor” Roth conversion, you make an after-tax contribution to a 401(k)—up to the IRS’s overall plan contribution limit—then convert to a Roth.
- Before doing a Roth conversion, look at your current tax rate versus where you expect it to be in retirement as well as the immediate tax impact of converting funds.