Fidelity Backdoor Roth: Your Ultimate Retirement Solution

  • Fidelity Investments offers customers the ability to make tax-advantaged transfers from their traditional IRAs to a Roth IRA.
  • These transfers may be made without incurring income tax liability.
  • Fidelity's backdoor Roth option allows investors to make tax-advantaged transfers from their traditional IRAs to a Roth IRA.

For those looking to secure a financially secure retirement, Fidelity Investments' backdoor Roth option may be the solution. By converting traditional IRAs to Roth IRAs, investors may be able to pay fewer taxes in retirement.
Fidelity's backdoor Roth option allows investors to make tax-advantaged transfers from their traditional IRAs to a Roth IRA. These transfers may be done without incurring income tax liability.
The Fidelity backdoor Roth is available to all IRA owners and does not require a minimum balance or account value.



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Contribution Limits

You can make an initial contribution of up to $6,000, or $7,000 if you are age 50 or older.
Annually, you can contribute up to $72,000, or $74,000 if you are age 50 or older.

Earnings are tax-free after age 591⁄2 and qualifying distributions can be withdrawn tax-free after you turn 701⁄2.

There are no income limits.

Withdrawals
You can withdraw the contributions at any time without penalty.

Your earnings and qualified distributions can be withdrawn tax-free in accordance with the Internal Revenue Code after age 591⁄2.

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Required Minimum Distributions

While all IRA accounts have RMDs, they can be deferred until April 1 of the year following the year in which you turn age 701⁄2. For those who turned 701⁄2 in 2021, RMDs must be taken by Dec. 31, 2022.
Roth IRA Distributions
Unlike traditional IRAs, Roth IRAs are not subject to RMDs after you reach age 701⁄2, and Roth contributions can be withdrawn at any time.

The only downside to Roth accounts is that you will need to pay taxes and penalties on withdrawals before age 591⁄2.

Roth IRA vs. Traditional IRA

There are two main differences between these retirement accounts:
The contributions limit, which is $6,500 ($7,000, if age 50 or older) per year to a Roth IRA, compared to $5,500 ($6,000, if age 50 or older) per year to a traditional IRA.

The tax rate. The earnings on a Roth IRA are tax-free, while the earnings on a traditional IRA are taxed at ordinary income tax rates.

Although the Roth IRA is newer, it offers several benefits. Because the earnings on a Roth IRA are tax-free, the Roth is a much better option for higher-income earners. Traditional IRA contributions are tax-deductible, which may be beneficial in the early days of your career, but higher-income earners are likely to get a bigger tax break from the Roth.