The Potential Tax Hit When High Earners Convert to a Roth IRA

High earners using a "backdoor" strategy to open a Roth IRA can trigger taxes if they own other IRAs.

Question: I'm thinking of simplifying my finances by rolling over money from my old employers' 401(k)s into a traditional IRA. But would that make it harder to do a backdoor Roth IRA contribution? I'm above the income limits to contribute directly to a Roth IRA and was considering making a nondeductible contribution to a traditional IRA and then converting it to a Roth.

Answer: Yes, you're right—rolling over more pretax money from your 401(k)s into a traditional IRA would affect your tax liability if you make a "backdoor" Roth IRA contribution. Some people use the backdoor Roth strategy when they earn too much to contribute directly to a Roth IRA; they instead contribute to a traditional IRA and then convert that traditional IRA to a Roth (see How High Earners Can Set Up a Roth IRA for more information).

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.