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Regardless of income, is there any reason not to do a back-door Roth if you can afford it? Since you are paying tax on that income used for the contribution either way, it seems that there is only upside--all earnings on that Roth will be tax-free.

Is this correct or am I missing something?

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    Are you talking about backdoor Roth IRA contribution vs. regular Roth IRA contribution? Or putting money in Roth IRA in general vs. in outside taxable accounts?
    – user102008
    Commented Apr 9, 2016 at 0:48

2 Answers 2

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There are some pitfalls to be aware of, as I recently found. The irs does not distinguish between your different Ira accounts when assessing taxes on conversions. If, in addition to funding a traditional Ira with post-tax dollars, you have traditional ira's that were funded with pre-tax dollars, your conversion to Roth will create a taxable event for the pre-tax traditional accounts. An often-cited example would be if you had an employer-sponsored retirement plan (401k for example) that was funded on a pre-tax basis, that you rolled over to a traditional Ira after you left that employer. If this applies to you, I recommend further reading on the pro-rata rule. If you don't have any pre-tax traditional iras, I am not aware of any issues with the backdoor Roth approach. For more info -- https://www.kitces.com/blog/the-impact-of-the-ira-aggregation-rule-on-after-tax-distributions-roth-conversions-60-day-rollovers-rmds-and-72t-payments/.

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  • Ugh, yeah. I have other pre-tax IRAs that make this less than a perfect (i.e. tax-free) conversion. Commented Apr 12, 2016 at 14:10
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    Not sure why you got a downvote. I actually went through the process of opening an IRA (plus one for my wife) and had a technical problem. When I called the broker to correct it, the rep stopped me and explained the caveat of having ANY pre-tax IRAs from ANY year with ANY broker. I thought she was crazy (and wrong), but then did my own research. Situation 3 in this article explains it: investopedia.com/ask/answers/042214/…. I am now doing a return of funds on those two IRAs. Commented Apr 13, 2016 at 14:00
  • There are some who worry that the IRS will retroactively deem backdoor Roth's as constructively a direct contribution via the "step transaction doctrine." Kitces also wrote about that: kitces.com/blog/…
    – stannius
    Commented Apr 14, 2016 at 17:11
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Assuming your IRA contributions are non-deductible and you have no deductible portion - yes, you're right.

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