Complete Guide to a Backdoor Roth IRA Contribution
A Roth IRA can be one of the best planning tools as it relates to saving for retirement. It's so good; there are regulations preventing high-income earners from contributing...
in the traditional sense.
A Backdoor Roth IRA is a powerful strategy for high-income earners who want to take advantage of tax-free growth and withdrawals provided by Roth IRAs but exceed the income limits for direct Roth IRA contributions. This guide walks you through the process, tax implications, common pitfalls, and advanced strategies.
Roth Information:
Income Limits for Direct Roth IRA Contributions (2025)
Single filers: Phase-out begins at $165,000, with no direct contribution allowed above $180,000.
Married filing jointly: Phase-out begins at $246,000, with no direct contribution allowed above $256,000.
Contribution Limits (2025)
Under 50: Up to $7,000 per year.
50 and older: Up to $8,000 per year (includes a $1,000 catch-up contribution).
What Is a Backdoor Roth IRA?
A Backdoor Roth IRA is not a special type of account but rather a strategy to legally bypass income limits for Roth IRA contributions.
In summary, you contribute after-tax dollars to a Traditional IRA and then convert those funds into a Roth IRA.
Step-by-Step Guide to a Backdoor Roth IRA
1. Open and Fund a Traditional IRA
Contribute after-tax dollars (non-deductible contribution).
Do not invest the funds yet—this prevents taxable gains before conversion.
2. Immediately convert the Traditional IRA to a Roth IRA
Transfer funds from the Traditional IRA to a Roth IRA.
Complete this as soon as possible to minimize taxable growth.
3. Report the Conversion on Your Taxes
File IRS Form 8606 to document the non-deductible contribution and conversion.
If no pre-tax funds exist, you won’t owe taxes on the conversion. (KEY: Pro Rata Rule).
Key Considerations and Pitfalls
The Pro Rata Rule
If you have other pre-tax IRA funds, the conversion is partially taxable. The IRS considers all your IRA balances when determining the taxable portion. The key is avoiding this strategy if you have other pretax IRAs. Pretax employer plans (401K, 403b, etc.) do not count towards this calculation.
Example:
You have $50,000 in a pre-tax IRA.
You contribute $7,000 after-tax and convert it.
Taxable amount = ($50,000 / $7,000) × $7,000 = $6,140 taxable.
Solution: Roll pre-tax IRA funds into a 401(k) before the conversion (if allowed by your employer plan).
The Five-Year Rule
Converted funds must stay in the Roth IRA for five years before withdrawals of earnings are tax-free.
Timing Your Conversion
Converting immediately after contribution avoids taxable earnings in the Traditional IRA.
The Mega Backdoor Roth
Some employer 401(k) plans allow after-tax contributions, which can be converted into a Roth IRA. This enables contributions up to a $70,000 Roth contribution annually.
Related: Video Breaking Down Mega Backdoor Roth Contributions
Related: More on 401(K) Plans
Should You Use a Backdoor Roth IRA?
✅ Good for You If:
You are a high-income earner above Roth IRA limits.
You have no existing pre-tax IRA funds (or can roll them into a 401(k)).
You want tax-free growth and withdrawals in retirement.
🚫 Not Ideal If:
You have significant pre-tax IRA balances and can’t avoid the pro rata rule.
You expect to be in a lower tax bracket in retirement, making a Roth less advantageous
Related: More on Roth IRAs - How to be a Roth IRA Millionaire
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About the author: Finn Price, CPFA, CEPA, is a business owner and wealth manager at Railroad Investment Group. He helps successful entrepreneurs & individuals with concentrated stock positions in their 30s, 40s and 50s build, organize, protect and transfer their wealth.
Note: this article is general guidance and education, not advice. Consult your money person or your attorney for financial, tax, and legal advice specific to your situation.
Securities and advisory services offered through LPL Financial, a registered investment Advisor, Member FINRA/SIPC.
