Say you started with $40,000 in before-tax contributions to non-Roth IRAs and another $10,000 in after-tax contributions to other non-Roth IRAs. That means 80% of your total non-Roth IRA accounts were made with pre-tax dollars. So 80% of whatever amount you convert to a Roth IRA will be taxed (at normal income tax rates), no matter which IRA it came from.

Matt Canine, a senior wealth advisor at the East Paces Group in Atlanta pointed out that the conversion "would not make as much sense for someone who is in a current high tax bracket."

The tax bite may be reduced by moving pre-tax IRA money into a 401(k), so all remaining IRAs are after-tax. But not all 401(k) allow that.

Other Pitfalls
Another potential pitfall is making the Roth conversion too quickly after buying the traditional IRA. Many experts suggest waiting at least 30 days to avoid penalties under the "step transaction doctrine."

"Even if a series of steps are all permitted, the IRS can view the steps as one combined action based on the underlying intent, and disallow that action," cautioned Matt Kerr, a senior wealth advisor at Keel Point in Chattanooga, Tenn.

Strategically And Legally Sound
Nevertheless, the backdoor Roth is perfectly legal. "This strategy has been an option ever since income limits for Roth conversions were repealed in 2010," said Matthew Schwartz, a financial advisor and planner at Great Waters Financial in Minnetonka, Minn., referring to that year's Tax Increase Prevention and Reconciliation Act (TIPRA).

Then, in 2017, the Tax Cuts and Jobs Act (TCJA) sealed the deal, explicitly permitting conversions to Roths for those whose adjusted gross income (AGI) exceeds the usual limit.

To be sure, the backdoor Roth isn't for everyone. It's most fitting for younger clients who anticipate higher taxes in the future and have time to let the Roth grow. "You need to allow the monies to be in there for at least five years before taking any distributions," saed Dan Sudit, a partner at Salt Lake City-based Crewe. Taking withdrawals earlier, or before age 59 and a half, incurs penalties.

It's also advisable for "people who are saving mostly through tax-deferred vehicles and need some after-tax or never-to-be-taxed assets to balance taxation of income when they retire," said Theodore Sarenski, a CPA and wealth manager at Capital One Investing in Syracuse, N.Y.

Though often overlooked, the backdoor Roth "can produce significant income tax savings over years or even decades, and can represent a valuable tax planning, retirement income planning, and estate planning strategy," said Eva Victor, senior vice president and director of wealth planning at Girard, a Univest Wealth division in King of Prussia, Pa.

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