Client Information
Used for Roth eligibility check
50+ qualifies for catch-up
For Roth vs Traditional comparison
For pro-rata rule calculation
š 2025 Limits & Eligibility Details
ā¼
2025 Roth IRA Contribution Limits:
Under Age 50:
- Base Contribution: $7,000
Age 50 and Over:
- Base Contribution: $7,000
- Catch-Up Contribution: +$1,000
- Total: $8,000
Direct Roth Income Phase-outs (2025):
ā¢ Married Filing Jointly: $236,000 - $246,000
ā¢ Single / Head of Household: $150,000 - $165,000
ā¢ Married Filing Separately: $0 - $10,000
ā¢ Married Filing Jointly: $236,000 - $246,000
ā¢ Single / Head of Household: $150,000 - $165,000
ā¢ Married Filing Separately: $0 - $10,000
The Backdoor Roth Advantage
1
Tax-Free Growth
All investment gains grow completely tax-free forever
$171,000
Roth Value at Retirement: $287,000
Total Contributions: $140,000
= Tax-Free Growth: $147,000
This growth will never be taxed
2
Tax-Free Withdrawals
Qualified withdrawals in retirement are 100% tax-free
$68,880
Roth Value at Retirement: $287,000
Ć Retirement Tax Bracket: 24%
= Tax Avoided:
vs. Traditional IRA taxed on withdrawal
3
No RMDs
Roth IRAs have no Required Minimum Distributions
Lifetime
Traditional IRA RMD Age: 73
Roth IRA RMD Age: Never
Let your money compound tax-free for life, or pass to heirs
Annual Contribution
$7,000
Years to Retirement
20
Roth at Retirement
$287k
Tax-Free Benefit
$216k
How the Backdoor Roth Works ā¼
The 3-Step Process
High earners can't contribute directly to a Roth IRA, but there's no income limit on conversions. The Backdoor Roth uses a non-deductible Traditional IRA as a pass-through.
1
Contribute to Traditional IRA
Make a non-deductible contribution (no tax deduction taken)
2
Convert to Roth IRA
Convert the entire balance to Roth (immediately or within days)
3
File Form 8606
Report the non-deductible contribution and conversion
Key Point: Because you made a non-deductible contribution, only the growth (if any) between contribution and conversion is taxable ā which is typically minimal if done quickly.
ā ļø Pro-Rata Rule Warning ā¼
Solutions to Avoid Pro-Rata Issues:
- Roll into employer 401(k): Move Traditional IRA balance into your S-Corp 401(k) before year-end
- Convert everything: Convert entire Traditional IRA balance to Roth (pay tax now)
- Wait it out: Delay Backdoor Roth until Traditional IRA is depleted
Roth vs. Traditional IRA Comparison ā¼
| Feature | Traditional IRA | Backdoor Roth IRA | Advantage |
|---|
Future Value Projections ā¼
Roth IRA Growth Over Time
Roth IRA (tax-free)
Traditional IRA (after-tax)
Year-by-Year Growth
| Age | Year | Annual Contrib | Roth Balance | Trad Balance | Trad After-Tax | Roth Advantage |
|---|
Roth IRA in Retirement ā¼
šÆ Key Retirement Benefits: No RMDs means your Roth can continue growing tax-free indefinitely.
You control when (and if) you withdraw. Great for estate planning ā heirs receive tax-free.
| Age | Milestone | Roth Balance | Roth Withdrawal (Tax-Free) | Traditional After-Tax |
|---|
Important Rules & Requirements ā¼
ā Qualified Withdrawal Rules
- āļø Account open for at least 5 years
- āļø Age 59Ā½ or older
- āļø Contributions can be withdrawn anytime tax/penalty-free
- āļø Each conversion has its own 5-year clock (if under 59Ā½)
ā ļø Timing Considerations
- ā° Contribute by April 15 for prior year
- ā° Convert as soon as possible after contribution
- ā° Pro-rata rule uses December 31 IRA balance
- ā° File Form 8606 with tax return
Form 8606 is Critical: This form tracks your non-deductible contributions. Without it, the IRS may treat your conversion as fully taxable. Keep copies of all Form 8606s filed.