For years, you’ve probably been lectured about the wonderfulness of Roth IRAs.

There are two ways to get money into a Roth IRA:

Convert a traditional IRA into a Roth account.

Make annual Roth IRA contributions.

The tax code applies limits to the second way.

This analysis focuses on how high-income individuals can beat the system by making annual Roth contributions via so-called backdoor Roth conversions.

Backdoor conversions have gotten a lot of recent attention in the media, but they are not necessarily no-brainer transactions.

We will explain why. But let’s first revisit some necessary background information. Here goes.

Two Big Roth IRA Tax Advantages

Let’s do a quick recap.

1. Tax-Free Treatment for Qualified Withdrawals

Unlike withdrawals from a traditional IRA, qualified Roth IRA withdrawals are federal-income-tax-free and usually state-income-tax-free too. A qualified Roth withdrawal is one taken after you have met both of the following requirements:1

You have had at least one Roth IRA open for over five years.

You have reached age 59 1/2, become disabled, or died.

In meeting the five-year requirement, the clock starts ticking on the first day of the tax year for which you make your initial contribution to a Roth account. That initial contribution can be a regular annual contribution ... Log in to view full article.