Part 2
Roth IRA contributions are limited by your modified adjusted gross income (MAGI).
For 2021, your Roth IRA contribution limit is reduced (phased out) or ineligible in the following circumstances:
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $198,000. You cannot make a Roth IRA contribution if your modified AGI is $208,000 or more.
Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2021 and your modified AGI is at least $125,000. You cannot make a Roth IRA contribution if your modified AGI is $140,000 or more.
Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.
The “Backdoor” in mega backdoor Roth IRA
Why is the phrase “Backdoor IRA” used to describe this strategy? Because high-income earners cannot come in the front door due to their income exceeding the threshold described above.
Here is how you get access to a Roth IRA.
Make non-deductible contributions to a tax-deferred account, which is allowable for everyone. Yes, you may have phased out of the ability to receive a tax write-off for your contribution to a Traditional IRA, SEP IRA, Solo 401(k) or 401(k) but there is no restriction on being able to contribute to the account. Once the contribution is made, the conversion process can start and that is how a mega backdoor Roth is created. I'll talk about that in the next blog.