For many high‑income earners and long‑term investors, Roth IRAs remain one of the most powerful tools for building tax‑free retirement income. But strict income limits can prevent some households from contributing directly to a Roth IRA. That’s where strategies like Backdoor Roth contributions and Roth conversions come into play.

At King Tide Advisors, we regularly help clients in Palm City, FL and Bethesda, MD evaluate whether these strategies can support their long‑term financial goals. Below, we break down how each strategy works and the potential benefits for your retirement plan.

What Is a Backdoor Roth IRA?

A Backdoor Roth IRA is an IRS‑approved strategy that allows high‑income earners to fund a Roth IRA even if they exceed income limits for direct contributions. It involves making a non‑deductible contribution to a traditional IRA and then converting those dollars to a Roth IRA.

The key advantage? You can still access the tax‑free growth and tax‑free withdrawals that make Roth IRAs so appealing.

Benefits of a Backdoor Roth IRA

• Tax‑free growth and withdrawals: Once inside a Roth IRA, future growth and qualified withdrawals are tax‑free.
• No required minimum distributions (RMDs): Unlike traditional IRAs, Roth IRAs don’t require withdrawals at age 73, giving you more control over your retirement income strategy.
• Flexible legacy planning: Heirs can inherit Roth assets without owing income tax, making Roths a valuable estate planning tool.
• Ideal for high earners: Income limits won’t prevent you from benefiting from Roth advantages.

What Is a Roth Conversion?

A Roth conversion allows you to move pre‑tax retirement funds—such as traditional IRA or 401(k) balances—into a Roth IRA. You’ll pay taxes on the amount converted in the year of the conversion, but future growth becomes tax‑free.

For investors in lower tax years or approaching retirement with high expected future income, this strategy can create meaningful long‑term tax savings.

Benefits of Roth Conversions

• Potentially lower lifetime taxes: Converting at a strategically low tax rate can reduce your overall tax burden.
• Helps manage future RMDs: Reducing traditional IRA balances lowers mandatory withdrawals later, helping manage Medicare IRMAA surcharges, Social Security taxation, and tax bracket creep.
• Tax‑free retirement income: Conversions create a future pool of tax‑free dollars you can use to supplement income without increasing your tax bill.
• More flexibility in retirement: A mix of taxable, tax‑deferred, and tax‑free accounts provides better control over withdrawals and long‑term planning.

When a Backdoor Roth or Roth Conversion May Make Sense

• You expect to be in a higher tax bracket later in life.
• You anticipate large RMDs that could increase your taxable income.
• You want to leave a tax‑efficient legacy to beneficiaries.
• You’re in a lower‑income year due to career changes, business decisions, or early retirement.
• You’re a high‑earning professional or business owner who can’t contribute to a Roth IRA directly.

Important Considerations Before Moving Forward

While both strategies offer compelling advantages, they aren’t right for everyone. It’s important to consider:

• The immediate tax cost of conversions
• The pro‑rata rule for Backdoor Roth contributions if you hold existing traditional IRA balances
• Your long‑term retirement income strategy
• State tax implications (especially relevant for Florida vs. Maryland residents)

Because these strategies can affect multiple parts of your financial plan—taxes, estate planning, Medicare, RMDs, investment allocation—professional guidance is essential.

How King Tide Advisors Can Help

As a fiduciary, fee‑only financial planning firm serving Palm City, FL and Bethesda, MD, King Tide Advisors helps clients evaluate whether Backdoor Roth contributions or Roth conversions are appropriate for their goals.

Our team can help you:

• Analyze the tax impact of conversions
• Determine the optimal timing for multi‑year conversion strategies
• Coordinate strategies with your CPA or tax professional
• Incorporate Roth planning into your broader retirement strategy

If you’re considering a Backdoor Roth or Roth conversion, or you want to explore whether it fits your financial plan, we’re here to help you make informed, confident decisions.