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Backdoor Roth

A backdoor Roth is a legal tax strategy for high earners to contribute to a Roth IRA despite exceeding the normal income limits. You contribute to a traditional IRA (non-deductibly), then immediately convert it to a Roth, sidestepping the income cap.

For the advanced version, see mega backdoor Roth; for Roth conversion mechanics, see Roth conversion; for high-earner limitations, see Roth IRA.

How it works

The Roth IRA has income limits — for 2024, you cannot contribute if your MAGI exceeds $161,000 (single) or $240,000 (married filing jointly). A backdoor Roth lets you fund a Roth even if you exceed these limits.

The process:

  1. Contribute $7,000 to a traditional IRA. You do not deduct it; it is a non-deductible contribution.
  2. Immediately (same day or within days) convert that $7,000 to a Roth IRA. You move the money from traditional to Roth.
  3. File Form 8606 on your tax return. This tells the IRS about the non-deductible contribution and conversion.

The result: $7,000 is now in your Roth IRA, tax-free. The tax cost is usually $0, because you are converting only the non-deductible contribution (the cost basis is already in the account).

The pro-rata rule: the catch

If you have any balance in a traditional IRA when you do a backdoor Roth, the IRS pro-rata rule complicates things.

Example: you have $50,000 in a traditional IRA (pre-tax) and want to do a backdoor Roth. You contribute $7,000 non-deductibly to the traditional IRA (now $57,000 total) and convert $7,000 to Roth. The pro-rata rule says: of the $7,000 converted, the fraction that is pre-tax is $50,000 ÷ $57,000 = 88%. So $6,160 of the conversion is taxable, and you owe taxes.

Solutions:

  • Have no traditional IRA balance. If you have no traditional IRA, SEP IRA, or SIMPLE IRA, the pro-rata rule does not apply.
  • Roll traditional IRA to 401(k). If your employer plan allows, you can roll your traditional IRA balance into the 401(k), removing it from the pro-rata calculation.
  • Wait for the pro-rata rule to apply only to new conversions. If you have existing balances but can eliminate them (roll to 401(k), or deplete through withdrawals), future backdoor Roths avoid pro-rata issues.

Timing

The conversion should happen immediately (same calendar year as the contribution, or within a few days). The longer you wait, the more earnings accumulate, which are taxable on conversion. Most people do backdoor Roths in early January (contributes for that year) and convert by mid-January.

Annual ritual

Many high earners do a backdoor Roth every year. In January:

  1. Contribute $7,000 to traditional IRA.
  2. Convert immediately to Roth IRA.
  3. File Form 8606 on tax return.

Repeat annually for decades — a simple way to max out Roth contributions for high earners.

Yes. The IRS acknowledges the backdoor Roth strategy and even provided guidance on it. It is not a loophole; it is using the law as written. Some people worry about IRS pushback, but there is no risk if you execute it correctly (non-deductible contribution, immediate conversion, correct Form 8606).

When to choose backdoor Roth

  • You earn too much for direct Roth contribution. Income exceeds the phase-out range.
  • You have no traditional IRA. Or you have rolled it to a 401(k).
  • You can afford the $7,000 contribution. It is $7,000 per year, not $69,000 like a mega backdoor Roth.
  • You expect high returns. The longer the money is in Roth, the more valuable the tax-free growth.

See also

Wider context