The Backdoor Trick for Big Roth Savings

Why? It's called a back door. I'm going to assume you went to college. Let's just play with that. And this college over here had a cool frat house. It's called a Roth Sigma High. You want to get into the Roth party? Well, to get into the Roth party, if you want to put in $7,000 or $8,000, depending on your age, you can't be over a certain income limit. The government says you make too much money, you can't come into the party. You're like, well, damn it, I want to come into the party. So what are those numbers? If you make between 146,000 and 161 and if you're married, it' between 230 and 240 grand. So if you make too much money, the government says you can't come into the party. Guess what? There's a back door to the party. I know about a back door over here. Yeah, that's right. I can get you into the party. So to get into the party you say, well, I can't come in the front door. But you know what I do? I'm going to put in my 7,000 in a traditional IRA. And in a traditional IRA, it's kind of like a regular 401k, you get a tax deduction unless you make too much money. So if I make too much money, I don't get the tax deduction. So people don't do a traditional contribution if they make too much money because I don't get the deduction. Why in the hell am I going to do it? Because if you do it on day two, you can convert to Roth tax free because you never got a tax deduction in the first place. There's no tax on the conversion and that is your ticket, my friends, in the back door. It's a two step process. So you set up the traditional step one and then you convert to Roth. Step two, pay zero tax and you're in the party in your toga outfit, having a great old time, red cup and all.