Backdoor Roth IRA: Advantages and Tax Implications Explained

What Is a Backdoor Roth IRA?

The backdoor Roth IRA is a maneuver that allows high earners to contribute indirectly to a Roth IRA when their incomes disqualify them from making direct contributions. The process involves making a nondeductible traditional IRA contribution followed by a traditional-to-Roth IRA conversion.

The backdoor Roth IRA strategy allows higher earners to benefit from a Roth IRA. These benefits include tax-free growth and tax-free withdrawals of earnings in retirement, as long as you meet certain timing requirements. You must be at least 59½ and have held the Roth IRA for at least five years. You can also withdraw your contributions at any time without penalties.

The maximum annual contribution limit for a backdoor Roth IRA for 2025 is $7,000, plus $1,000 if you’re 50 years old or older. The contribution limit increases to $7,500 for the 2026 tax year. The catch-up contribution also increases to $1,100.

If not for the backdoor Roth IRA, your Roth IRA annual contribution maximum could be further limited by your modified adjusted gross income (MAGI). Most of the thresholds change each year:

• For 2025: Direct Roth IRA contributions are limited for those with MAGI starting at $236,000 (married filing jointly), $0 (married filing separately), or $150,000 (single and head of household filers). Direct Roth IRA contributions are not allowed for those with MAGI at or above $246,000 (married filing jointly), $10,000 (married filing separately), or $165,000 (single and head of household filers).
• For 2026: Direct Roth IRA contributions were limited for those with MAGI starting at $242,000 (married filing jointly), $0 (married filing separately), or $153,000 (single and head of household filers). Direct Roth IRA contributions were not allowed for those with MAGI at or above $252,000 (married filing jointly), $10,000 (married filing separately), or $168,000 (all other filing statuses).
  

How a Backdoor Roth IRA Works

The backdoor Roth IRA is a four-part process:

1. Open a traditional IRA

Choose your favorite brokerage platform, where you’ll open a new traditional IRA.

2. Make a post-tax, nondeductible contribution to the traditional IRA

In addition to the maximum annual contribution limit, your contribution is also limited to your earned income in the year of contribution. If you have little or no earned income for the year, you may be able to boost your IRA contribution based on your spouse’s earned income.

3. Immediately, and before you invest your cash contribution, convert the traditional IRA to a Roth IRA

You’ll owe income tax on any accrued earnings before the traditional IRA funds are converted to a Roth IRA. Most IRA contributions initially land in an interest-bearing cash account, so delaying the final step can inadvertently lead to a tax bill and cause an unnecessary headache. After this point, you’re free to begin investing your contributions.

4. Fill out Form 8606, Nondeductible IRAs, when filing your taxes for the year

Unless you file Form 8606, the IRS will assume you made a taxable traditional-to-Roth conversion based on two forms your brokerage account will submit on your behalf: Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and Form 5498, IRA Contribution Information. Form 8606 lets the IRS know that your traditional IRA contribution in step number two was nondeductible and not subject to income tax upon conversion in step number three.

The first three steps can be completed at any time before the original due date of your tax return—typically April 15 of the following year. You can complete a backdoor Roth IRA each year.

The cash you contribute in step No. 2 is post-tax, meaning that you’ll pay income tax on that money in the year you earned it. If you execute the backdoor Roth IRA rules correctly, the process shouldn’t cause any additional current-year taxes, and if you follow the Roth IRA withdrawal rules, you won’t need to pay income taxes on your Roth IRA funds in the future.

People run into unintended backdoor Roth IRA tax consequences when they have existing traditional IRA funds, including SIMPLE IRAs, SEP IRAs, and 401(k) funds that were rolled over into an IRA. That’s because of the backdoor Roth IRA pro-rata rule, which treats all your non-Roth IRAs as one.

Let’s say you have a traditional IRA with a pre-tax $15,000 balance. You then open a separate traditional IRA, make a post-tax, nondeductible $5,000 contribution, and do a backdoor Roth conversion. Under the pro-rata rule, the IRS considers the conversion as coming proportionally from all non-Roth IRA balances. The combined balances total $20,000. Of that, $15,000 is 75%. So, 75% is considered pre-tax and taxable. As a result, the taxable amount is 75% of the $5,000, or $3,750. (The actual tax bill will depend on your marginal tax rate, which is applied to that $3,750.

Advantages and Disadvantages of a Backdoor Roth IRA

The Backdoor Roth IRA is a fairly simple way to maximize your Roth retirement funds. Unlike a Roth 401(k), which is only available to those whose employers offer it, anyone with earned income (or a spouse with earned income) can invest through a Roth IRA. Plus, if you follow the rules, Roth contributions and their growth won’t be taxed again. That feature can be particularly helpful for retirees, who may want to keep their taxable income low to avoid triggering higher Social Security taxes or Medicare premiums based on their MAGI.

What’s the downside of the backdoor Roth IRA? They can feel onerous the first few times you do it. Mistakes during the four-step process can create taxable events that can’t be easily reversed. And people with existing non-Roth IRAs can’t do a backdoor Roth IRA without triggering the pro-rata rule and generating a potentially hefty tax bill.

Why Use a Backdoor Roth IRA?

The backdoor Roth IRA strategy is for people whose high income limits or disqualify them from making direct Roth IRA contributions. It’s easy to stay within the rules and avoid tax complications, especially once you know which potential pitfalls, such as the pro-rata rule, to avoid.

However, there is at least one more straightforward way for high earners to access a Roth investment account. Many employers offer a Roth 401(k) option to employees of any income level. The Roth 401(k) contribution ceilings are the same as those for a traditional 401(k): $23,500 in the 2025 tax year and $24,500 in the 2026 tax year, with an additional catch-up contribution limit available to those at least 50 years old. The catch-up contribution in 2025 is $7,500 and $8,000 in 2026.

If you don’t have access to—or have more to give after maxing out—a 401(k), it might be time to look into a backdoor Roth IRA.

When to avoid the backdoor Roth IRA? First, don’t go through the hassle of a backdoor Roth IRA if your income allows you to make direct Roth IRA contributions. Second, talk to a credentialed tax advisor if you have any existing non-Roth IRA accounts, including a traditional IRA, SIMPLE IRA, or SEP IRA.

Example of a Backdoor Roth IRA

Let’s say you are a single filer. Let’s also suppose that your 2025 MAGI is $180,000. Your deadline for 2025 Roth IRA contributions is April 15, 2026. But your income is too high to make direct Roth IRA contributions. Let’s further assume you’ve already maxed out contributions to an employer-sponsored Roth 401(k). So your only option for kicking in money to a Roth retirement savings account is to use the backdoor Roth IRA strategy.

Here are the steps you should take:

Step 1: Open a traditional IRA

On March 15, 2026, you open a traditional IRA at your brokerage firm.

Step 2: Make a post-tax, nondeductible contribution to the traditional IRA

You contribute $7,000—your backdoor Roth IRA limit as a 30-year-old for 2025—to the traditional IRA.

Step 3: Immediately, and before you invest your cash contribution, convert the traditional IRA to a Roth IRA

Your brokerage firm should allow you to make the conversion with a few clicks. You then select your Roth IRA investments, whether they are exchange-traded funds (ETFs) or mutual funds. Still, a word of caution. While the IRS allows conversion immediately after making your post-tax-nondeductible contribution to a traditional IRA, IRA expert Ed Slott tells Investopedia that he urges clients to wait 30 days, so the transactions appear on different statements, if you ever need to prove the contribution and conversion were separate.

Step 4: Fill out Form 8606, Nondeductible IRAs, when filing your taxes for the year

Your tax prep software should prompt you to fill out Form 8606, finalizing your backdoor Roth IRA maneuver.

The Bottom Line

The backdoor Roth IRA strategy helps countless high earners access the benefits of the Roth IRA. When executed carefully and properly, it allows you to stow away thousands of dollars each year in an account that provides tax-free growth, tax-free withdrawals in retirement, and more.