Backdoor Roth and the Pro Rata Rule

Roth IRAs, due to their tax-free growth and tax-free distributions, can be useful accounts for any financial plan. The IRS has rules about who can fund Roth IRAs; however, there is a loophole that allows some high income earners to fund Roth IRAs indirectly. This loophole is commonly referred to a "Backdoor Roth" contribution. The IRS has a rule that makes it difficult to fund backdoor Roth IRAs if you already have a traditional IRA. I discuss this "pro rata rule" in detail. Failure to understand this rule is one of the biggest mistakes when utilizing the backdoor Roth IRA. Download your free Backdoor Roth IRA Checklist at https://www.m-advisor.com/backdoor-roth-ira-checklist