Unlocking Retirement Potential:  
The Backdoor Roth IRA Strategy for High-Income Earners 

What is it? 
The Backdoor Roth IRA is a financial strategy high-income earners use to bypass income limitations and indirectly contribute to a Roth IRA. Roth IRA contributions are restricted for individuals exceeding IRS income thresholds: $146K Modified Adjusted Gross Income (MAGI) for single filers and $230K for joint filers in 2024. The Backdoor Roth IRA allows you to make nondeductible contributions to a traditional IRA and convert those funds into a Roth IRA, thereby circumventing the income limits imposed on direct Roth IRA contributions. 

Why is it Beneficial? 
For high-income earners, the Backdoor Roth IRA offers several benefits. First, it provides access to a Roth IRA's tax advantages, including tax-free retirement withdrawals. This is particularly advantageous for individuals anticipating to be in a higher tax bracket during retirement. Roth IRAs also have no required minimum distributions (RMDs) during the account holder's lifetime, providing flexibility in managing retirement income and potential tax implications. Additionally, the Backdoor Roth IRA enables diversification of retirement savings, complementing other tax-advantaged accounts such as 401(k)s and traditional IRAs. 

How do I Determine if it is Right for Me? 
When considering the Backdoor Roth IRA, it is essential it aligns with your overall financial plan and retirement objectives. Here’s how your advisor can assist you:  

  • Understand Your Income
    Take a close look at your current earnings and potential future income to see if Roth IRA income limits could impact you. 

  • Assess Tax Benefits
    Delve into your tax circumstances and retirement objectives to determine if the tax advantages and flexibility of a Roth IRA match your financial goals. 

  • Personalized Evaluation
    Your advisor will conduct a tailored assessment, considering your unique financial situation, investment timeline, and future plans. 

  • Stay IRS Compliant
    Ensure compliance with IRS regulations and carefully weigh any potential tax implications, especially regarding gains in your Traditional IRA before conversion. 

This report was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.

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