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How to Fund a Backdoor Roth IRA

Thanks to a quirk in the tax law almost anyone, regardless of income, can now enjoy the benefits of a Roth IRA, according to IRA expert Ed Slott.

Christine Benz: Ed, I want to talk about what we have been calling a backdoor IRA, Roth IRA. So, the idea is that if you had earned too much to contribute directly to a Roth, you would open a traditional nondeductable IRA and then convert at some point down the line. What's your take on that maneuver, good or bad?

Ed Slott: That's a great maneuver, I advise it all the time. It's a quirk in the tax law, it's almost an unintended consequence or an oversight because of conversions now, and since 2010, anyone can convert. All the income limits were removed. So you can have for unlimited amount. Somebody if they have the money could convert $10 million because all the income limits were removed, but yet for $5,000 Roth contribution the government says no, there we are going to draw the line. $10 million is fine but for the $5,000 we have limit, and I think they just forgot to get rid of them or it's a nutty thing.