First, if you’re not familiar with the difference between a Traditional IRA and a Roth IRA, you can find my previous blog post here, where I go in depth on each account type. Understanding those basics will make this blog post a lot easier to follow.

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Disclaimer: Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

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A Backdoor Roth IRA isn’t a special account type that you open, it’s currently a completely legal strategy that allows high earners to make Roth IRA contributions even though they are over the Modified Adjusted Gross Income (MAGI) limit set by the IRS to contribute directly. (IRS, 2026)

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Direct Contribution Limitations

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The IRS sets income limits on who can contribute directly to a Roth IRA each year. For 2025, if your MAGI exceeds a certain threshold, your ability to contribute phases out, and eventually disappears entirely. (IRS, 2026)

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2025 Phase Outs:

• Single / Head of Household: $150,000 – $165,000

• Married Filing Jointly: $236,000 – $246,000

• Married Filing Separately: $0 – $10,000

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If your income falls above these ranges, you cannot directly contribute to a Roth IRA the traditional way. But there are currently no income limits on making non-deductible Traditional IRA contributions, and there are currently no income limits on converting a Traditional IRA to a Roth IRA. That’s exactly where the backdoor strategy comes in.

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How the Backdoor Roth IRA Works

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Here’s the process broken down into two simple steps:

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Step 1: Contribute to a Traditional IRA (Non-Deductible)

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You contribute to a Traditional IRA using after-tax dollars. For 2025, the contribution limit is $7,000 per year, or $8,000 if you’re age 50 or older. (IRS, 2026)

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Since you’re over the income limit, you won’t get a tax deduction for this contribution. You’re contributing after-tax money, which is what makes the next step work.

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Step 2: Convert the Traditional IRA to a Roth IRA

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Once the contribution is in your Traditional IRA, you convert it to a Roth IRA. Since you already paid taxes on that money in Step 1 and did not receive a tax deduction, the conversion should betax-free (See below for things to watch out for). Your money is now in a Roth IRA, where it grows completely tax-free going forward as long as all distribution rules are followed.

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One important note: you’ll need to report your non-deductible contribution on IRS form 8606. This form tracks your “basis” the after-tax money you put in, so the IRS knows you’ve already paid tax on it, and you don’t get taxed again at conversion. As well as the IRS form 1099-R showing that you converted a traditional IRA to a Roth IRA, which is still considered a distribution. (Motley Fool, 2023)

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One Thing to Watch Out For: The Pro-Rata Rule

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If you already have money sitting in any pre-tax IRA, the IRS doesn’t let you just convert the new after-tax contribution in isolation. Instead, they look at all your Traditional IRA balances combined and calculate what percentage of your total IRA money is after-tax. That percentage is what’s tax-free at conversion, the rest is taxable. (Vanguard, 2026)

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This is called the pro-rata rule, and it can create an unexpected tax bill if you’re not prepared for it.

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‍Example: You have $43,000 in a pre-tax Traditional IRA and you add a $7,000 non-deductible contribution. Your total IRA balance is now $50,000. Only 14% of that is after-tax money. When you convert $7,000, only$980 is tax-free, the remaining $6,020 is taxable income.

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So, how could you avoid the pro-rata rule? If your 401(k) plan accepts incoming rollovers, you may be able to roll your existing pre-tax Traditional IRA funds into your 401(k) before doing the conversion. This clears out your IRA balance, eliminates the pro-rata issue, and makes the Backdoor Roth clean. (Vanguard, 2026)

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Important Things to Consider

• Contribute and convert quickly. Don’t let the money sit in the Traditional IRA for long. Any earnings that accumulate before you convert become taxable.

• Each backdoor Roth IRA contribution is subject to a separate 5 year rule (Fidelity, 2026)

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The Bottom Line

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The Backdoor Roth IRA is a tool that is available for high earners who want to build tax-free retirement income that is not subject to RMDs, when they think they can’t get any money into a Roth IRA. It is important that you consult with a financial and tax professional to ensure that all rules are followed.

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Have questions about whether the Backdoor Roth IRA makessense for your situation? Let’s talk!

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Disclaimer: This blog post is for educational purposes only and should not be construed as personalized financial or taxadvice. Please consult with a qualified financial professional and/or taxadvisor before making any decisions regarding IRA contributions or Roth conversions. Converting to a Roth IRA may have tax implications depending on your individual circumstances. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.