Backdoor Roth IRA: how high earners access Roth

The Roth IRA has income limits: contributions phase out between $146K-$161K (single) or $230K-$240K (married) in 2024. The Backdoor Roth IRA is a legal workaround that lets high earners effectively contribute to a Roth IRA by converting traditional IRA contributions.

The basic steps

• Step 1: Contribute to a Traditional IRA (no income limit for contributions, but may not be deductible at your income).
• Step 2: Immediately convert the Traditional IRA balance to a Roth IRA.
• Step 3: Pay taxes on any gains (minimal if converted immediately).
• Step 4: Report it correctly on IRS Form 8606 to avoid double-taxation.

Why it works

The IRS has no income limit on Traditional IRA contributions and no income limit on conversions. Combining these two rules effectively eliminates the Roth IRA income limit for anyone willing to take the extra step. Congress knows this loophole exists and hasn't closed it — it's considered intentional policy.

The pro-rata rule (read this carefully)

If you have existing pre-tax money in any Traditional IRA, SEP-IRA, or SIMPLE IRA, the IRS treats your conversion as a pro-rata mix of pre-tax and after-tax dollars. Example: $6,500 after-tax contribution + $60,000 existing pre-tax IRA = ~90% of your conversion is taxable. Painful.

Avoiding the pro-rata trap

• Before doing Backdoor Roth: roll any existing Traditional IRA money into your current employer's 401(k) if allowed
• This leaves $0 in Traditional IRAs
• Then make your $7,000 after-tax Traditional IRA contribution
• Convert to Roth with minimal tax impact

Timing and mechanics

• Contribute by April 15 for the previous tax year
• Convert ASAP after contribution to minimize gains (which would be taxable)
• Many brokerages (Fidelity, Vanguard, Schwab) support this directly online
• Keep records of Form 8606 filings — necessary to prove basis

Mega Backdoor Roth (bonus)

Some 401(k) plans allow after-tax contributions beyond the $23,000 limit, then in-plan conversion to Roth. This can put $40K-$60K into Roth annually. Check if your plan supports "after-tax contributions" and "in-service distributions" or "in-plan Roth conversions".