Didactic Minute: What is a Back Door Roth?

Hey, it’s Jon from Financial MD. Welcome to today’s Didactic Minute. One of the most common questions I get outside of student loans, of course, is what is a backdoor Roth? You hear about it in all the blogs and all the articles that are focused on physicians, but what is it really?

Most of you guys know what a Roth IRA is, okay. It’s a good thing that we often suggest you do during residency because that’s a time when your income is low enough to actually do it, but a backdoor Roth comes into play typically when you go into practice and you’re making too much money to actually qualify to do a Roth IRA. So if you’re single and you make over 120, 130,000 dollars or you’re married and you’re making over around 200,000 – that’s most of you in practice – then you’re going to not be able to qualify to do a Roth IRA directly. So what a backdoor Roth is you open a regular IRA and a Roth IRA. The money goes into the regular IRA as a non-deductible contribution, and then at some point, you do what’s called a Roth conversion because you can do that at any income level in any amount. You do a Roth conversion over from a traditional IRA over here to the Roth IRA over here and that’s how it’s done. Now some people do this on a regular basis, some people do it one time, but that’s a backdoor Roth.

So hope that helps. Be sure to check out our website and our blog for more info on that and some links to it. If you have any questions on doing that or you want us to help you set one up, you know how to reach us, financialmd.com.

This is Jon. We’ll see you next time.

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