Backdoor Roth vs Taxable Investing
A **backdoor Roth** (non-deductible traditional IRA then convert) shelters growth from future taxes when executed correctly. A **taxable brokerage** is flexible but pays annual dividends and capital gains tax along the way.
Step by step
1. Avoid pro-rata
Roll pre-tax IRA balances before backdoor to prevent tax mess.
2. File Form 8606
Document basis on non-deductible contribution.
3. Hold tax-efficient funds
Taxable account favors index ETFs over high turnover.
Backdoor Roth vs taxable
Backdoor wins for long hold; taxable wins for pre-59½ access without Roth rules.
- Backdoor Roth: Tax-free growth; annual limit; conversion steps.
- Taxable brokerage: Unlimited contributions; capital gains tax drag.
Use our calculators
Common mistakes
- Pro-rata tax on existing IRAs
- Forgetting 8606 reporting
FAQ
Is backdoor legal above income limit?
Yes when done properly—rules can change; verify current law.