The so-called backdoor Roth is one way to avoid a big tax bill when you're over the income limit for a Roth.
If you're also covered by an employer retirement plan, such as a 401(k), you wouldn't be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you're in effect depositing after-tax dollars, so you'd only owe tax on the earnings. If you do the Roth conversion shortly after the nondeductible contribution, the tax due to conversion will likely be nominal.
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This method is most beneficial tax-wise if you don't have other deductible IRAs. However, there is an important caveat here: If you do have IRAs that you deducted contributions for or that you rolled out of old 401(k) plans, the taxable portion of any conversion you make is prorated across all your IRAs.
As you can see in this Roth conversion example, if you have $15,000 in traditional IRAs for which you've received a deduction and you want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the portion of the $5,000 you can convert tax-free, which is 25 percent, or $1,250. So you would owe tax on the other $3,750, based on your current tax bracket.