What is a backdoor Roth IRA?

If you’ve ever tried to contribute to a Roth IRA and hit a wall because of your income, you’re not alone — and yes, the rules really are that frustrating. High earners often get shut out of direct Roth contributions, even though the benefits (hello, tax-free retirement income) are too good to ignore.

Enter the backdoor Roth IRA — a completely legal, IRS-recognized strategy that helps people who make “too much” still get money into a Roth. If you’ve heard the term and thought it sounded shady or complicated, we’re here to set the record straight. 

In this guide, we’ll walk you through what a backdoor Roth IRA actually is, how it works in real life (no jargon, we promise), and whether it makes sense for your situation. By the end, you’ll feel more confident in deciding if this strategy belongs in your retirement planning toolbox. 

What is a backdoor Roth IRA and why would anyone use one? 

A backdoor Roth IRA isn’t a special account. It’s a two-step process that helps high earners move money into a Roth IRA when they aren’t allowed to contribute directly. 

Here’s why people go through the effort: 

• Tax-free growth: Your investments grow without you paying tax each year. 
• Tax-free withdrawals in retirement: That’s right — no tax when you take the money out (as long as you follow the rules). 
• No required minimum distributions (RMDs): You’re not forced to withdraw money at age 73 like with traditional IRAs. 
• More flexibility in retirement: Roth IRAs give you control over how and when you take money out — a powerful tool for tax planning later. 

And to be clear: This isn’t a loophole in the “you’re going to jail” sense. It’s a widely used strategy that even financial advisors and tax pros recommend for clients with high incomes. 

Why can’t high earners just contribute to a Roth IRA like everyone else? 

The IRS puts income limits on who can contribute directly to a Roth IRA. In 2023, if you made: 

• Over $153,000 as a single filer (or the phase-out started at $138,000)
• Over $228,000 as a married couple filing jointly (phase-out started at $218,000)

…then you were either partially or completely ineligible to contribute to a Roth IRA the normal way. 

Why the limits? The government wants to reserve Roth IRA perks for middle- and lower-income earners. The thinking is that high earners already have access to plenty of other tax-advantaged ways to save. 

How does the backdoor Roth IRA process work? 

Here’s the good news: The process is simpler than it sounds. Here's how it works in plain English: 

1. Open a Traditional IRA. 
   Even if you earn millions, anyone can open and fund a traditional IRA. 
2. Make a nondeductible (after-tax) contribution. 
   You put money in — up to the annual limit ($6,500 if under 50, $7,500 if 50+ for 2023). Because your income is high, you don’t get a tax break now. That’s okay — the point is just to get the money in the door. 
3. Convert that money to a Roth IRA. 
   You move the funds into a Roth IRA. Since you already paid taxes on the contribution, this part usually isn’t taxed — assuming you don’t have other pre-tax IRA money (we’ll explain more below). 
4. Report it correctly on your tax return. 
   You’ll need to file IRS Form 8606, which tells the IRS you made a nondeductible contribution and then converted it. Skipping this step could cause double taxation.

What are the real tax implications of doing a backdoor Roth IRA? 

Here’s the part that trips people up and why it’s worth paying close attention. 

• Nondeductible contributions don’t reduce your taxable income now. 
  This isn’t a tax break today. It’s about setting yourself up for tax-free income later. 
• If you have other traditional IRA money, it gets complicated. 
  The IRS uses a formula called the pro-rata rule, which blends all your IRA money together when calculating how much of your conversion is taxable. 

Let’s say: 

• You contribute $6,500 to a new IRA (after-tax), 
• But you already have $93,500 in pre-tax IRA accounts, 
• Then convert $6,500 to a Roth... 

Only 6.5% of that conversion would be tax-free. The rest? Taxable. 

So if you have significant pre-tax IRA balances, talk to a tax pro before proceeding. 

• Any gains before conversion are also taxable. 
  That’s why many people convert the money to Roth almost immediately — to avoid investment growth triggering tax. 

Is a backdoor Roth IRA really for me? 

Here’s how to tell if this move makes sense for you: 

✅ You expect to earn too much to contribute to a Roth IRA directly and you want to build tax-free retirement income. 

✅ You’re comfortable handling a bit of paperwork or working with a pro. 

⚠️ You have large pre-tax IRA balances — in which case, hit pause and speak with an expert. 

⚠️ You’re nervous about changing laws. While the backdoor Roth has been on the radar for years, nothing has passed to shut it down yet. Still, tax law is never set in stone. 

Some advisors also mention the "step transaction doctrine." This is the idea that doing both steps (contribute + convert) immediately could be challenged. There’s no IRS rule requiring a delay, but a few days' buffer may offer peace of mind. 

What’s the wrong way to set up a backdoor Roth IRA and how can I avoid costly mistakes? 

Here are common mistakes and how to steer clear: 

• Forgetting to file Form 8606. 
  This form tracks your after-tax IRA contributions. Without it, you could end up paying tax on the same money twice. 
• Letting money sit too long before converting. 
  If your contribution grows before the conversion, that gain is taxable. Many people convert within a day or two to keep it clean. 
• Having pre-tax IRA money and not accounting for it. 
  The pro-rata rule can catch people off guard. Talk to a tax advisor if this applies to you. 
• Treating this as a quick DIY project without understanding the steps. 
  A CPA or financial advisor can walk you through it and may save you more than they cost by helping you avoid expensive mistakes. 

So… should you take the backdoor? 

If you’re a high earner who wants the long-term benefit of tax-free income in retirement, a backdoor Roth IRA can be a smart move. But it’s not for everyone. 

Here are three must-haves before diving in: 

1. You expect high income now and in retirement. 
2. You’re comfortable handling some tax paperwork or getting professional help. 
3. You understand the potential tax pitfalls and how to avoid them. 

Still unsure? A short conversation with a tax pro can go a long way. And if you’ve already got a Roth IRA on your wish list, this might be your way in. 

Frequently Asked Questions 

Is this legal? 
Yes. It’s a recognized and widely used strategy. 

Can I do this every year? 
Yes, as long as contribution rules and laws stay the same. 

How much can I put into a backdoor Roth? 
Same as any IRA: $6,500 per year if under 50, or $7,500 if age 50+ (for 2023). 

Can I take the money out whenever I want? 
Not without penalties. Standard Roth withdrawal rules apply. 

Does this impact my 401(k)? 
Nope — these are separate accounts.

The bottom line 

The backdoor Roth IRA isn’t just some internet hack — it’s a smart, strategic move for the right person. If you think that person might be you, start by reviewing your current IRA situation and income expectations. If the pieces line up, consider implementing this strategy (with a pro’s help, if needed). 

Tax laws might change, but the value of being proactive and informed? That’s timeless.