What is Backdoor Roth IRA?
Definition A backdoor Roth is a strategy for high earners whose income exceeds the limits for contributing directly to a Roth IRA. They contribute to a nondeductible traditional IRA and then convert it to a Roth, effectively funding a Roth indirectly. The pro-rata rule can create unexpected tax if the person holds other pre-tax IRA balances, so it must be planned carefully.
It lets high-income clients access Roth benefits they would otherwise be shut out of, but the pro-rata rule makes professional guidance valuable.