Written By
Jessy Gilger
If your income is below specific IRS-defined caps, you (and your spouse) are allowed to contribute directly into a Roth IRA up to the annual contribution limit.
At the time of this writing, limits are up to $6,000 per person, with an additional $1,000 available for those over age 50. This is the most straightforward way to fund an IRA and can be a great way to stack bitcoin savings for the long term.
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A Roth conversion allows you to convert your pre-tax retirement assets (such as Traditional IRAs, 401(k)s, and other non-Roth employer plans) into post-tax Roth assets—including bitcoin.
You have to pay income tax on the converted amounts, but you’ll be eligible to make tax-free withdrawals from the account in the future. You can think of it as “closing your tab” with the IRS.
A “backdoor” Roth contribution is an informal term for a technique higher-income taxpayers can use to get around the income limits for direct contributions. They're a popular way for high-income individuals to save bitcoin tax-free.
Since Traditional IRAs have no income limits on eligibility, high-income taxpayers can make non-deductible contributions to Traditional IRAs and subsequently convert those contributions into Roth IRAs. Since the contribution was non-deductible in the first place, there is no extra tax incurred during the conversion.
The “mega backdoor” contribution is a heftier version of the standard backdoor method. It uses employer plans as the pre-tax vehicle to catch the initial contribution before conversion.
Employer plans generally have higher limits, allowing you to contribute and convert more than $6,000 per year. The maximum 2022 contribution amount for the mega backdoor strategy is $61,000—nearly three whole bitcoin at this writing!
This article is provided for educational purposes only, and cannot be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice.