Clark Howard Says Skip the Backdoor Roth IRA: Here's the Math for High Earners

High-earning couples who already max 401(k) contributions and use a mega-backdoor Roth inside their workplace plan may find additional backdoor Roth IRA space rarely worth the added complexity and tax risk. A 48-year-old couple earning $380,000 can either route $15,000 annually through backdoor Roth steps or skip them, but mistakes can create surprise tax bills. If executed correctly, $7,500 per spouse invested for 20 years at 7% can grow to about $307,000 of tax-free wealth per spouse, or about $614,000 combined by age 68. The pro-rata rule can undermine the strategy when either spouse has any pre-tax IRA balances, including rollover 401(k) amounts, SEP-IRAs, or deductible traditional IRA contributions.

"The single variable that decides whether the backdoor Roth helps or hurts is whether either spouse holds any pre-tax IRA balance. Old 401(k) rollovers, SEP-IRAs, and deductible traditional IRA contributions all count. Under IRC Section 408(d)(2), the IRS aggregates every traditional, SEP, and SIMPLE IRA a taxpayer owns when calculating the taxable portion of a Roth conversion."

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