I fully funded my 2020 Roth IRA and just noticed that my MAGI for 2020 was above the contribution limit. Since I wasn't allowed to put any money into Roth IRA what do I do now? Should I convert the Roth IRA into a traditional IRA?
Any suggestions appreciated. TY
Yes, that would be an option. You might also want to consult your financial adviser seeking for other alternatives.
A back door Roth is a term used to describe a method of funding a Roth IRA when your modified adjusted gross income (MAGI) is too high to allow you to directly contribute to a Roth IRA. A back door Roth consists of opening a Traditional IRA and making a fully non-deductible contribution to the Traditional IRA. The Traditional IRA can then be converted to a Roth IRA without any income limitations or restrictions on your MAGI.
Additionally, the funds you put into the Roth are considered converted funds, not contributions. That means you have to wait five years to have penalty-free access to your funds if you’re under the age of 59½.3 In this sense, they differ from regular Roth IRA contributions, which you can withdraw at any time without taxes or penalties.
A backdoor Roth IRA lets you get around these limits: