Earning too much to contribute to a Roth IRA? You're not locked out. The Backdoor Roth IRA is a perfectly legal strategy that lets high earners enjoy tax-free retirement growth—regardless of income. Here's exactly how to do it.
KEY TAKEAWAY
What Is a Backdoor Roth IRA?
A Backdoor Roth IRA isn't a special account type—it's a two-step strategy that allows high-income earners to fund a Roth IRA indirectly when they exceed income limits for direct contributions.
The "backdoor" works because while Roth IRA contributions have income limits, Roth conversions do not. Anyone, regardless of income, can convert Traditional IRA money to Roth IRA. By combining a non-deductible Traditional IRA contribution with an immediate conversion, you effectively contribute to a Roth IRA through the back door.
The Backdoor Roth in Simple Terms
The Problem:
You earn $250,000/year. Direct Roth IRA contributions are prohibited above $165,000 (single) or $245,000 (married).
The Solution:
- 1. Contribute $7,500 to Traditional IRA (no income limit for contributions)
- 2. Don't claim a tax deduction (non-deductible contribution)
- 3. Convert the entire balance to Roth IRA
- 4. Pay taxes on any gains (usually $0 if converted immediately)
Result: $7,500 in your Roth IRA, growing tax-free forever.
"You can convert amounts from a traditional IRA to a Roth IRA regardless of your income level.
— IRS Publication 590-B
Who Needs a Backdoor Roth IRA?
The Backdoor Roth IRA is specifically designed for investors whose income exceeds Roth IRA contribution limits. If you're in this category, understanding your retirement account options is essential for maximizing tax-advantaged growth.
2026 Roth IRA Income Limits
| Filing Status | Phase-Out Begins | Complete Phase-Out | Action |
|---|---|---|---|
| Single / Head of Household | $150,000 | $165,000 | Use Backdoor Roth |
| Married Filing Jointly | $230,000 | $245,000 | Use Backdoor Roth |
| Married Filing Separately* | $0 | $10,000 | Backdoor is essential |
*If you lived with your spouse at any time during the year. Source: IRS 2026 contribution limits.
KEY TAKEAWAY
Step-by-Step Backdoor Roth Process
Executing a Backdoor Roth IRA correctly requires precision. Follow these steps exactly to avoid tax complications.
The 5-Step Backdoor Roth Process
- Step 1: Open a Traditional IRA
If you don't already have one, open a Traditional IRA at a major brokerage (Fidelity, Schwab, Vanguard). This takes 10 minutes online.
Important: Keep this account separate from any existing Traditional IRA with pre-tax money (more on this below).
- Step 2: Contribute to the Traditional IRA
Contribute up to $7,500 (or $8,500 if age 50+) for 2026. This is a non-deductible contribution—you will NOT claim a tax deduction.
Leave the money in cash (money market) temporarily—don't invest it yet.
- Step 3: Wait Briefly (Optional)
Some advisors recommend waiting a few days to avoid any appearance of a "step transaction." Others convert immediately. The IRS has never challenged immediate conversions, but waiting 1-3 days is conservative.
- Step 4: Convert to Roth IRA
Request a Roth conversion from your brokerage. This moves the entire Traditional IRA balance to your Roth IRA. If converted quickly while in cash, there are typically no gains to tax.
Most brokerages have a simple "Convert to Roth" button in their IRA section.
- Step 5: File IRS Form 8606
When filing taxes, complete Form 8606 to report the non-deductible contribution and conversion. This tracks your basis and ensures you don't pay taxes twice.
Keep records of Form 8606 every year—you'll need them to prove your basis in future years.
Real Example: Sarah's Backdoor Roth
Scenario: Sarah is a software engineer earning $200,000 (single). She cannot contribute directly to a Roth IRA.
January 5: Sarah contributes $7,500 to a new Traditional IRA at Fidelity (non-deductible).
January 8: The contribution settles. She requests a Roth conversion of the full $7,500.
January 10: Conversion completes. The $7,500 (plus $0.12 in interest) is now in her Roth IRA.
April (Tax Filing): Sarah files Form 8606 showing $7,500 basis and $7,500.12 conversion. Taxable amount: $0.12.
Result: Sarah owes approximately $0.03 in taxes (24% × $0.12) and has $7,500 growing tax-free in her Roth IRA.
The Pro-Rata Rule Explained
The pro-rata rule is the biggest potential complication with the Backdoor Roth IRA. Understanding it is critical before you convert.
IMPORTANT
How the Pro-Rata Rule Works
Pro-Rata Rule Example
Scenario: You have a Traditional IRA with $93,500 of pre-tax money from old 401(k) rollovers. You contribute $7,500 (non-deductible) for a Backdoor Roth.
Total IRA Balance: $93,500 (pre-tax) + $7,500 (after-tax) = $101,000
Pre-tax Percentage: $93,500 ÷ $101,000 = 92.6%
After-tax Percentage: $7,500 ÷ $101,000 = 7.4%
If you convert $7,500:
- Taxable portion: $7,500 × 92.6% = $6,945
- Non-taxable portion: $7,500 × 7.4% = $555
- At 32% tax bracket: $6,945 × 32% = $2,222 tax bill
Instead of a nearly tax-free conversion, you owe $2,222. The pro-rata rule just made your Backdoor Roth very expensive.
Avoiding the Pro-Rata Rule
Three Ways to Avoid Pro-Rata Complications:
1. Roll Pre-Tax IRA into 401(k) — Best Option
If your employer's 401(k) accepts incoming rollovers, move all pre-tax Traditional IRA money into it before doing the Backdoor Roth. The 401(k) balance doesn't count in the pro-rata calculation.
2. Convert Everything to Roth
Convert your entire Traditional IRA to Roth and pay taxes on all pre-tax money now. This clears the slate for future Backdoor Roth conversions. Best done in a low-income year.
3. Never Have Pre-Tax IRA Money
When changing jobs, roll 401(k) into new employer's 401(k) instead of into an IRA. Keep Traditional IRAs at $0 except for annual Backdoor Roth contributions.
Calculate Your Tax-Free Growth
See how much your Backdoor Roth contributions could grow tax-free over time.
Open FIRE CalculatorTax Reporting: Form 8606
Proper tax reporting is essential for a Backdoor Roth IRA. Form 8606 tracks your non-deductible contributions and calculates the taxable portion of conversions.
Form 8606 Key Sections:
- Part I: Nondeductible Contributions to Traditional IRAs
Report your $7,500 non-deductible contribution here. - Part II: 2026 Conversions From Traditional, SEP, or SIMPLE IRAs to Roth IRAs
Report the conversion amount and calculate taxable portion. - Line 14: Your "basis" in Traditional IRAs
This carries forward year to year. Keep all Form 8606s!
CRITICAL
5 Common Backdoor Roth Mistakes
Mistake #1: Ignoring the Pro-Rata Rule
Having pre-tax IRA money and assuming you can convert just the non-deductible portion. Always check your total IRA balances first.
Mistake #2: Investing Before Converting
If your contribution grows to $8,500 before you convert, you owe taxes on the $1,000 gain. Keep the money in cash until after conversion.
Mistake #3: Not Filing Form 8606
Without Form 8606, the IRS assumes your contribution was deductible—meaning you'll pay taxes on it twice (now and at withdrawal).
Mistake #4: Waiting Too Long to Convert
The longer money sits in the Traditional IRA, the more gains accumulate and become taxable upon conversion.
Mistake #5: Forgetting About the 5-Year Rule
Each Backdoor Roth conversion has its own 5-year waiting period before converted amounts can be withdrawn penalty-free (if under 59½).
The Mega Backdoor Roth: $70,000 Loophole
If your employer's 401(k) allows after-tax contributions and in-service Roth conversions, you can supercharge the Backdoor Roth strategy. This is particularly valuable for high earners who want to maximize tax-advantaged retirement savings.
Mega Backdoor Roth Overview
2026 Total 401(k) Limit: $70,000 (or $77,500 if 50+)
Regular 401(k) Contribution: $24,500
Employer Match (example): $10,000
Remaining Space for After-Tax: $70,000 - $24,500 - $10,000 = $35,500
If your plan allows, you can:
- 1. Contribute $35,500 after-tax to 401(k)
- 2. Convert to Roth 401(k) or Roth IRA (in-service conversion)
- 3. Add $35,500 MORE to tax-free retirement savings annually
KEY TAKEAWAY
Is the Backdoor Roth Legal?
Yes, the Backdoor Roth IRA is completely legal. Congress has been aware of this strategy for over a decade and has not closed the "loophole." In fact, the SECURE Act 2.0 and other recent legislation have left the Backdoor Roth intact.
"There are no income limits for converting Traditional IRA money to a Roth IRA.
— Congress, via IRS Publication 590-A
Legislative Risk Considerations:
- Build Back Better (2021-2022): Proposed eliminating Backdoor Roth, but the bill never passed
- Current Status (2026): No active legislation to eliminate the strategy
- Recommendation: Take advantage while the strategy remains available—tax laws can change
Action Steps: Execute Your Backdoor Roth
The Backdoor Roth IRA is one of the best tools available to high earners for building tax-free retirement wealth. The strategy is straightforward when executed correctly.
Your Backdoor Roth Checklist
KEY TAKEAWAY
High earners who consistently execute the Backdoor Roth can accumulate hundreds of thousands in tax-free retirement savings. Combined with a Mega Backdoor Roth (if available), you could add $40,000+ annually to Roth accounts. Start this year—your future self will thank you.
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