The backdoor Roth IRA is a way for people who earn too much money to contribute to their Roth IRA. This strategy is a perfectly legal way to bypass the income tax threshold imposed on traditional Roth IRA contributions.

With a backdoor Roth IRA, you contribute to a traditional IRA and then rollover or convert those funds into a Roth IRA. When the rollover or conversion occurs, the taxes on the IRA will be due. For some, depending on the amount being converted, this cost can be very substantial.

Even if you can't contribute to a Roth IRA directly, you should still consider the backdoor Roth IRA as this type of account has some major tax benefits over regular IRAs. The primary benefit being that once the money is in Roth IRA, it is generally tax-free when it’s withdrawn, whereas with a traditional IRA, all contributions as well as gains are subject to taxes.

The future benefits of having a Roth IRA can also be beneficial to heirs since an inherited Roth IRA can be passed on to them tax-free. This means that the heir can draw out the money over time and won’t owe taxes on it, even if it’s been decades since the original Roth IRA was established.

To sum up the backdoor Roth IRA strategy, it’s a way for high earners to get around some of the restrictions with traditional Roth IRA accounts. Taxes on the money must be paid when it is transferred from a traditional IRA to a Roth IRA, but the savings in long term and for heirs can make this a smart move. If you have questions about if this strategy is right for you, consider speaking with a financial advisor to ensure you are making a sound decision.