A backdoor Roth IRA is a strategy for high-income earners who exceed the income limits for direct Roth contributions. It involves contributing to a traditional IRA (which has no income limits) and then converting those funds into a Roth IRA.
While legal, this strategy has tax implications, especially if you already have other pre-tax IRA balances. The IRS uses a pro-rata rule to determine how much of the conversion is taxable, so careful planning is essential.
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