Backdoor Roth IRA
Definition
A legal strategy allowing high-income earners who exceed Roth IRA income limits to make non-deductible traditional IRA contributions and then convert them to a Roth IRA.
The Backdoor Roth IRA is a two-step strategy that circumvents Roth IRA income limits. In 2025, single filers earning above $161,000 and married filers above $240,000 cannot contribute directly to a Roth IRA. The backdoor method works around this: contribute to a traditional IRA (no income limit for non-deductible contributions), then convert to a Roth IRA.
The process is straightforward: open a traditional IRA, make a non-deductible contribution ($7,000 for 2025, $8,000 if 50+), then convert the entire balance to a Roth IRA. Since the contribution was non-deductible (after-tax money), you only pay tax on any gains between contribution and conversion. Converting quickly minimizes taxable gains.
The critical complication is the "pro-rata rule." If you have existing pre-tax money in any traditional IRA (including SEP and SIMPLE IRAs), the IRS treats all your traditional IRA balances as one pool for conversion purposes. You can't convert "just the non-deductible contribution" — a proportional amount of the conversion is taxable based on your total IRA balance.
To avoid the pro-rata issue: roll any existing traditional IRA balances into your employer's 401(k) before doing the backdoor conversion (401(k) balances don't count for the pro-rata calculation), or use the "Mega Backdoor Roth" through a 401(k) that allows after-tax contributions and in-plan Roth conversions.
The legality of the backdoor Roth has been questioned but never eliminated. Congress has proposed banning it multiple times, and it was included in the Build Back Better Act (which didn't pass). Until legislation explicitly prohibits it, the strategy remains legal and widely used by financial advisors for high-income clients.
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Frequently Asked Questions
Is the backdoor Roth IRA legal?
Yes, as of 2025. The IRS has acknowledged the strategy in its guidance, and it's widely used by financial advisors. Congress has proposed banning it multiple times but hasn't succeeded. The strategy could be eliminated by future legislation, so take advantage while it's available.
What is the pro-rata rule and how do I avoid it?
The pro-rata rule makes backdoor Roth conversions partially taxable if you have existing pre-tax IRA money. To avoid it, roll any traditional IRA, SEP IRA, or SIMPLE IRA balances into your employer's 401(k) before doing the backdoor conversion. This zeros out your IRA balance, making the conversion tax-efficient.