High earners are told they cannot use a Roth IRA. The wealthy ignore that rule.

Wealthy people do this to get around income limits for Roth contributions. If you make over $144,000 as a single filer or 228,000 jointly as a married filing joint in 2025, you're not allowed to directly contribute to a Roth IRA. But wealthy people have found a perfectly legal way around this. It's called a backdoor Roth conversion. And here's how it works. So step one, you open up a traditional IRA and you make a non deductible contribution. Step number two, you convert that money into a Roth ira. There's no income limit on the conversions when you do it that way. Step number three, that money now grows tax free for life, just like a regular Roth. So this move was made legal by Congress in 2010. And yeah, it's still available, but just to make sure you don't invest the money before converting or you could trigger some gains on the taxes. And as always, you got to report it properly. There's this form, it's called an 8606 form. You use it to avoid IRS headaches. You if you're a high earner and you want tax free retirement income, this is your loophole and you can use it as long as it lasts. But a little plot twist here to this video is there's a much more efficient way of getting money into a Roth IRA if you have a lot of other money already sitting in your 401k. So instead of wasting time and energy on backdoor Roth IRAs, really doing a Roth conversion of your existing funds is going to be much more efficient use of your money. And you can get a lot more money over there. If you're going to pay taxes, you might as well pay tax on getting the existing money. That's going to cause a problem later converted to a Roth. So that's a much better way to get it done. But at least now you know the rules on the backdoor Roth.