With a Roth IRA you have income limitations. At a certain amount of income, the amount you can put into a Roth IRA begins to reduce and at $203,000 in yearly income you can no longer do a Roth IRA. This is problematic for people that have a lot of taxable income in a given year.

There are ways around the limitation but it comes with strings attached. If you make more than $203,000 in gross income as a married couple, you can take advantage of a Traditional IRA. The tradeoff here is you get a tax deduction now and pay the taxes later but if you make more than $123,000 and have a plan at work like a 401(k), you can no longer do a deductible IRA.

The back door Roth strategy says that you can convert that IRA to a Roth IRA and since you've put in after-tax dollars into that account, it functions just like it would had you just put the money into the Roth IRA.

If you have money sitting in more than one IRA, the IRS says you have to make an additional calculation that basically feels like a double tax. Another option that allows you to avoid this calculation is to roll your IRA into a 401(k), and that will allow you to perform the back door Roth without any implications at all.

Before you consider the Back Door Roth strategy, consider your portfolio. If you have money in other IRA's you could end up paying what feels like a double tax.

One of the interesting things about a Roth conversion is you have to make up your mind by Dec 31 of any given year. This means you may not fully understand the taxable implications because you haven't done your taxes for the year.

A Roth Recharacterization used to be a way that you could reverse the Roth IRA decision in the subsequent tax year if you felt that it was a bad deal. Given the changes in the tax code, you can no longer do a Roth Recharacterization. This underscores the importance of understanding the taxable implications of a Roth conversion and working with someone who understands your situation as well.

You do not want to do a Roth conversion if you don't understand the taxable implications and can't undo your decision. If you're going to do a Roth IRA, make sure you understand the implications and how it's going to impact you.