2022 Backdoor Roth IRA – Can I Contribute?

Roth IRAs are a great way to invest money for your retirement and can help you become a millionaire for retirement, completely tax-free. However, Roth IRAs have income limitations and if you made over $125,000 ($198,000 married filing jointly and $208,000 married filing separately) for 2021, you aren’t allow to contribute the full amount to a Roth IRA.

The 2022 Backdoor Roth IRA was close to being shut down but as of now, it is still legal to do so. Backdoor Roth IRAs are a great way to contribute to a Roth IRA if you exceed the income limits to contribute to a Roth IRA in the traditional way. In this article, I’ll go all over how to do a 2022 Backdoor Roth IRA.

What Are Backdoor Roth IRAs?

A Backdoor Roth IRA is not an official type of retirement account and rather an informal name to contribute to a Roth IRA when your income is above the threshold for contributing to it directly. If you made between $125,000 and $140,000 in 2021, you contribute to a Roth IRA at a reduced amount while if your income was over $140,000, you would not be able to contribute at all. This is when the Backdoor Roth IRA comes in!

How Can I Contribute to a Backdoor Roth IRA?

These are the steps to contribute to a Backdoor Roth IRA if you made over $140,000 in 2021. If you made over $125,000 but less than $140,000 you can contribute a partial amount of the $6000 to a Roth IRA with the other part to a traditional IRA.

Steps to Contribute to a Backdoor Roth IRA

1. Contribute $6,000 (or a lower amount) to your IRA.
2. Rollover your IRA to your Roth IRA. This is an IRA conversion and also known as a rollover.

Can I Contribute to a Backdoor Roth IRA in 2022?

Yes, you can contribute to a 2022 Backdoor Roth IRA! Backdoor Roth IRAs were in peril for a while when the Build Back Better Act was enacted in late 2021. This threatened to close the loophole of a 2022 Backdoor Roth IRA. The House Democrats passed this law in November 2021 but the Senate did not pass it, which allowed the Backdoor Roth IRA 2022 to live once more. However, it’s only a matter of time until this is closed so contribute to a 2022 Backdoor Roth IRA while you can.

What Are Mega Backdoor Roth IRAs?

You can also contribute to a 2022 Backdoor Roth IRA through a Mega Backdoor Roth IRA. This process is a bit more complicated than a simple Backdoor Roth IRA. Consult with a financial advisor or do your research if you are planning to do a Mega Backdoor Roth IRA, as this has a lot of moving parts.

There are three things to check with your 401k provider when attempting to do a Mega Backdoor Roth IRA.

Things to Check Before Contributing to Mega Backdoor Roth IRA

1. Check that your 401k plan provider allows “after tax contributions.” This is completely separate from from Roth 401k or traditional 401k contributions.
2. Check that your provider allows “in-service distributions” to a Roth IRA. This means that your employer’s 401k plan allows you to take money out of your 401k while you’re still employed at that company or lets you move money from your after tax contributions to your Roth 401k.
3. You have money to even contribute to a Mega Backdoor Roth IRA. Check that you have money leftover even after maxing out your normal 401k contribution limits, your Roth IRA, and deducting your living expenses. If not, there’s no point in trying to do a Mega Backdoor Roth IRA!

Steps to Contribute to a Mega Backdoor Roth IRA

1. Max out your 401k contribution for the year ($20,500 for 2022, $27,000 if you are aged 50 or older).
2. Check that your 401k plan provider allows “after tax contributions.” This is completely separate from from Roth 401k or traditional 401k contributions.
3. Contribute an excess to your Roth 401k or Roth IRA ($38,500 for 2021 and $40,500 for 2022). These are post-tax dollars that will not get taxed for their growth when you withdraw at retirement.

Mega Backdoor Roth IRA accounts are really for the people who earn tons of money so don’t fret if you can’t do it! If you make under $140,000, contribute to a Roth IRA. If you make over $140,000 contribute to a Backdoor Roth IRA. And if you make tons of extra money, that’s when you should think about a Mega Backdoor Roth IRA.

2022 Backdoor Roth IRA Conclusion

While the 2022 Backdoor Roth IRA loophole is still up in the air, you will be able to contribute to it for the time being. So take advantage while it lasts!

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