If you believe there is any chance you might go over the maximum contribution income for a Roth, it makes sense to do the backdoor Roth. Look at it this way: there is really no downside to doing a backdoor Roth unnecessarily, but having to go back and make corrections if you go over the maximum income for contributing directly to a Roth will be a PITA.
Have you ever done a backdoor Roth before? People sometimes are intimidated by the idea of doing a backdoor Roth because it's an extra step. I've done it for the past couple of years, and it's really not very difficult. Follow these steps:
1) If you don't already have a traditional IRA, open one. Put the full $5500 in. This is done with POST-TAX dollars, not pre-tax.
1a) If you do already have money in a tIRA, you will need to decide what to do about the money that's already in there, as you may end up between a rock and a hard place. Converting all the money in your tIRA to your Roth will possibly yield you a large tax bill for this year. Not converting all the money will run you afoul of the pro rata rule. I would suggest speaking to a tax planner like a CPA if this applies to you.
2) Open a Roth IRA if you don't already have one. If you do already have one, you can use your current Roth.
3) After some period of time (can be as little as a day or two), you will convert the money in your tIRA to your Roth. Your account custodian (VG, Schwab, etc.) should be able to help you through the steps to do this if you have trouble. But make sure you select an IRA CONVERSION.
3a) You will be given the option to pay taxes on your Roth conversion. Assuming you have only the post-tax dollars in your tIRA from step 1, you should NOT withhold any taxes. Again, this is post-tax money, so you have already paid your income taxes on it. Do not pay taxes twice!
4) Once the money is in your Roth, you are free to invest it as you like in accordance with your investing plan.
5) When you go to do your taxes next spring, pay special attention to how you report your IRA contribution. Again, you made your IRA contribution with POST-TAX dollars, so you should NOT pay taxes on your tIRA contribution, nor on your Roth conversion. If you will be using a commercial tax planning service, make sure that they understand this point. I got into an argument with an H&R Block tax preparer last year because she first thought doing the back door Roth was illegal (it's not, and a call to her supervisor confirmed that I was correct about this), and then she couldn't tell me how to make the software report that I had made a post-tax tIRA contribution. Eventually after playing around with the software for a while, I figured it out. But the moral of the story is that you should not assume that someone who works for a tax prep company automatically will know what they're doing. It is highly likely that they have never done a backdoor Roth for themselves or for one of their other clients, since many high-earning clients would choose to use a CPA.
