What Is a Backdoor Roth IRA?

If you’re looking to get ahead on planning for retirement, individual retirement accounts, or IRAs are great tools. An IRA is a tax-advantaged vehicle that helps you grow your retirement savings over time. Roth IRAs are particularly attractive, because you don’t pay taxes on withdrawals in retirement. There’s one problem: You can’t contribute to a Roth IRA directly if you make above a certain income. A backdoor Roth IRA, though, can solve your problem by allowing you to convert a traditional IRA into a Roth.

A financial advisor can help you develop a strategy that will maximize your retirement savings.

What Is a Backdoor Roth IRA?

A backdoor Roth IRA permits account holders to work around income tax limits by converting what was originally a traditional IRA into a Roth IRA. For people with a modified adjusted gross income (MAGI) above certain levels, there are limits on direct Roth IRA contributions. For 2025, they go as follows:

Single
- Reduced contributions with a MAGI of $153,000 – $168,000
- Ineligible to contribute with a MAGI of $168,000 or above
Married filing jointly
- Reduced contributions with a MAGI of $242,000 – $252,000
- Ineligible to contribute with a MAGI of $252,000 or above
Married filing separately (lived with spouse during tax year)
- Reduced contributions with a MAGI up to $9,999
- Ineligible to contribute with a MAGI of $10,000 or above
Married filing separately (did not live with spouse during tax year)
- Reduced contributions with a MAGI of $153,000 – $168,000
- Ineligible to contribute with a MAGI of $168,000 or above
Head of household
- Reduced contributions with a MAGI of $153,000 – $168,000
- Ineligible to contribute with a MAGI of $168,000 or above

However, these income limits do not exist for conversionary accounts. In other words, putting money into a traditional IRA and then transferring the funds to a Roth IRA is a legitimate maneuver. This is called a backdoor Roth IRA, because you are finding an alternative method to adding money to a Roth account. Anyone who wishes to do so can move the money from a traditional IRA to a Roth IRA, regardless of income.

Though it may sound like a too-good-to-be-true way to sidestep taxes, backdoor Roth IRAs don’t exist as a way to dodge taxes. When you transfer your traditional IRA money into a Roth IRA, you’re required to pay taxes on the money from your traditional IRA.

You may be wondering whether backdoor Roth IRAs are completely legal. Many people have voiced their skepticism on the legality of backdoor Roth IRAs, given its unusual name. But as of now, they are indeed legal. Though the maneuver has been around since 2010, there are rumors on Capitol Hill that Congress is looking to end this tax loophole.

How to Set Up a Backdoor Roth IRA

Setting up a backdoor Roth IRA is much simpler than it may initially seem. It’s just an act of conversion. In essence, you’ll be converting your Traditional IRA into a Roth IRA by wholly switching the account and paying the taxes owed on your former traditional IRA contributions, as well as on any gains earned.

Here’s a step-by-step guide:

First, put your money in a traditional IRA account.
Secondly, you’ll convert that account to a Roth IRA. Then you’ll pay taxes on the contributions to the traditional IRA that haven’t already been taxed. Be sure to note the funds you convert to a Roth could count as taxable income for that year.
Finally, you’ll pay your taxes on the gains in your account.

This chain of events emphasizes the original message above: backdoor Roth IRAs don’t exempt you from paying the taxes all other Roth IRA account holders pay. However, it will allow you to withdraw money in retirement tax-free.

Why You Might Prefer a Roth IRA

A woman reviews backdoor Roth IRA strategies.

If you are considering a backdoor Roth IRA, it is important to understand the two types of IRAs: traditional and Roth. The difference hinges primarily on tax breaks.

With a traditional IRA, you can deduct your annual contributions from your taxes. However, you must pay taxes on your withdrawals in retirement. Traditional IRAs are best for people whose current tax rates are likely higher than those they’ll face in retirement. On the other hand, with Roth IRAs, your contributions are not tax-deductible. But come retirement, you won’t face taxes on your withdrawals. Roth IRAs are best for those in lower tax brackets who expect to be in higher brackets in the future. You pay taxes on the seeds of savings but not on the crops that have flourished over the years.

Roth IRAs aren’t readily available to everyone, though. You can reference the income limits above to see what the rules are for your tax filing status. Again, a backdoor Roth IRA allows for those who exceed the income limits to contribute anyway.

Is a Backdoor Roth IRA Right for You?

Every financial situation is different, so its important to evaluate which type of IRA is right for you. Backdoor Roth IRAs may seem a surefire way to get the benefits of a Roth IRA if you make too much money. Keep in mind that backdoor Roth IRAs are generally geared toward higher-income investors with large savings in traditional IRAs.

On the other hand, who is the backdoor Roth IRA not for? Essentially, anybody who’s looking into the strategy solely as a means to get around the income limits for Roth IRA contributions. Before you decide which way to go, know the risks and the benefits for your personal finances. Be sure to enlist the support of a tax professional.

The Pro-Rata Rule and Tax Implications

The IRS applies the pro-rata rule when you convert money from a traditional IRA to a Roth IRA. This rule requires you to look at the total value of all your traditional, SEP and SIMPLE IRAs combined, not just the account you are converting. You cannot isolate only after-tax contributions for conversion if you also hold pre-tax IRA assets.

When a conversion occurs, the IRS treats each converted dollar as a mix of pre-tax and after-tax money based on your overall IRA balances. The taxable portion is calculated using the ratio of pre-tax funds to total IRA assets at year-end. As a result, a backdoor Roth conversion can generate more taxable income than expected if you have large pre-tax IRA balances.

Employer-sponsored plans such as 401(k)s are not included in the pro-rata calculation. Some taxpayers move pre-tax IRA funds into a current employer’s 401(k) to reduce the amount subject to the pro-rata rule before completing a conversion. Whether this option is available depends on plan rules and employment status.

Form 8606 is used to report non-deductible IRA contributions and Roth conversions. Accurate reporting is required to track after-tax basis and avoid double taxation. Errors in applying the pro-rata rule or filing the form can lead to unexpected taxes or IRS correspondence.

Bottom Line

Since its 2010 inception, the backdoor Roth IRA has been a desirable option among high-income individuals. That’s because they otherwise may not have been eligible for money-saving Roth IRA benefits. It would make plenty of sense to want in. But before you convert your assets, be completely clear on the Roth IRA contribution limits for the year you plan to make the change and find out whether your current job offers an employee retirement plan. This could make a big impact on your ability to get around IRA attribution regulations.

Investing Tips

Whether you just started saving for retirement, or you’re only a couple of years away from retiring, the experience of a retirement planning professional could be helpful. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Outside of IRAs, many companies offer their employees the ability to save for retirement through a 401(k) program. If you have access to your workplace retirement plan, check out how your account could grow with SmartAsset’s 401(k) calculator.