Backdoor Roth vs. Traditional IRA

Submitted by Alon David on Thu, 2022-12-08 20:16

I make above the income limit to contribute to a Roth IRA and above the limit to deduct my Traditional IRA contribution.

I started my roth ira when I was in college and contributed every year. However last year was the first year I made above the limit. I do not receive any retirement benefits from my work.

I read I can do a backdoor roth ira by first contributing to a traditional ira and immediately converting to a roth. I did this for the first time last year. However now I don’t know if the backdoor roth ira is a better strategy than just a traditional ira. If I am in the 24% bracket this year and that will hopefully only get higher. Shouldn’t I start a traditional ira instead? I can forgo all taxes and reduce my income when I retire and take out the money then. However I read you cannot deduct a traditional ira contribution to my income, but does that really matter long term? Or is the roth ira a better option? I also learned if I switch to just contributing to a traditional ira the backdoor option forever gets eliminated.

Should I continue the backdoor roth ira for the rest of my life. Or should go with the traditional ira (with no tax deduction)?

Thank you



Submitted by Alan - IRA critic on Thu, 2022-12-08 20:32

  • A Roth contribution (back door or regular) is always preferable to a non deductible TIRA contribution. While a deductible TIRA contribution can be beneficial, you cannot deduct the contribution if your W-2 (if paid salary) shows a check in Box 13 (Retirement plan participant). If that check is there, because your income is also too high, you don’t qualify for the deduction. That leaves you with the back door Roth as your best option.
  • If you are married, your spouse’s income and retirement plan participation must also be considered.
  • You indicated that you were not a participant in a workplace plan, but also that your income is too high to deduct the contribution. It can’t be both. If you (or spouse) is not a participant there are no limits to deduct a TIRA contribution. You would then a choice between the deduction and the back door Roth and would have to determine which option to choose. If you expect to go into the 32% bracket in the future, you should continue the backdoor Roth now and then take the deduction when you enter the 32% bracket.
  • Of course, changing jobs to an employer that offers a qualified plan would change things and eliminate the deduction possibility, but you could then contribute to a pre tax 401k or similar plan.

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