How Backdoor Roth IRAs Work for High-Earners

If you’re a high-income earner, you’ve probably run into a frustrating wall: you make too much to contribute directly to a Roth IRA. But there’s a legal workaround that many savvy investors use it’s called the Backdoor Roth IRA.

This strategy lets you enjoy tax-free growth and withdrawals in retirement, even if your income exceeds IRS limits. But it comes with a few technical requirements and potential pitfalls. In this guide, we’ll break down how it works, what to watch out for, and whether it makes sense for you.

Why High Earners Can’t Use Roth IRAs Directly

In 2025, the IRS limits who can contribute directly to a Roth IRA based on Modified Adjusted Gross Income (MAGI):

Single filers: Phase-out begins at $146,000, ends at $161,000
Married filing jointly: Phase-out begins at $230,000, ends at $245,000

If your income is above the upper limit, you can’t contribute to a Roth IRA directly. But there’s no income limit on Roth conversions—and that’s the key.

What Is a Backdoor Roth IRA?

The Backdoor Roth IRA is a two-step process:

Contribute to a Traditional IRA (non-deductible).
Convert that amount to a Roth IRA.

Because you already paid taxes on the money (via the non-deductible contribution), the conversion is mostly tax-free—unless you run into the pro-rata rule (we’ll get to that).

Step-by-Step: How to Do a Backdoor Roth IRA in 2025

Here’s how high earners can legally execute a backdoor Roth strategy:

1. Open a Traditional IRA

You don’t need to deduct the contribution from your taxes—in fact, if you’re a high earner, you probably can’t. That’s okay. This contribution is after-tax.

2025 contribution limit: $7,000 (under 50)
$8,000 if you’re 50 or older

2. Fund the IRA

Contribute up to the limit for the tax year. If you already have a Traditional IRA, this will be added to your existing balance.

3. Wait Briefly (Optional)

Some advisors recommend waiting a few days or weeks before converting to avoid the appearance of a “step transaction” (where the IRS sees it as one single action). There’s no required wait time, but some caution is reasonable.

4. Convert to Roth IRA

Ask your provider to convert the Traditional IRA to a Roth IRA. The custodian will handle the transaction.

You’ll receive a 1099-R for the conversion
Report it on Form 8606 when filing your taxes

Beware of the Pro-Rata Rule

Here’s where it can get tricky. If you already have pre-tax money in a Traditional, SEP, or SIMPLE IRA, the IRS applies the pro-rata rule to your conversion.

This means your conversion will be partially taxable, based on the ratio of after-tax to pre-tax dollars across all your IRAs.

Example:

You have $93,000 in a Traditional IRA (pre-tax)
You contribute $7,000 (after-tax) and want to convert it
The IRS sees your total IRA value as $100,000
Only 7% of your conversion is after-tax → 93% will be taxable

How to Avoid This:

Roll pre-tax IRA funds into an employer 401(k) (if the plan allows), leaving only after-tax funds in your IRA.
Then do the Backdoor Roth with minimal tax impact.

Common Mistakes to Avoid

Forgetting the pro-rata rule: This is the most expensive mistake. Check your total IRA balances first.
Not filing Form 8606: This IRS form reports non-deductible IRA contributions and conversions. Skipping it can result in double taxation.
Contributing too much: Stay within the $7,000 or $8,000 limit.
Step transaction risk: While rare, the IRS might scrutinize immediate conversions. A short waiting period can help reduce audit risk.
Doing it late in the year: Try to complete both the contribution and conversion in the same tax year for clarity.

Who Should Use a Backdoor Roth IRA?

A Backdoor Roth makes sense if:

You earn above the Roth income limits
You want tax-free growth and withdrawals
You plan to hold the money long term (5+ years)
You can avoid or minimize pro-rata taxation

Even if you can’t avoid all taxes during conversion, paying taxes now may still be worth it if your investments grow significantly over time.

Real-World Scenario

Maya, 38, earns $220,000/year and is maxing out her 401(k). She’s not eligible for a direct Roth IRA. She opens a Traditional IRA, contributes $7,000, then converts it to a Roth IRA within a week. She has no other IRA balances, so she owes $0 in taxes on the conversion.

Her Roth IRA grows tax-free, and she avoids the income restrictions completely.

Final Thoughts: A Smart Workaround, With Care

The Backdoor Roth IRA isn’t a loophole it’s a completely legal and IRS-recognized strategy for high-income individuals to enjoy Roth benefits.

The key is understanding your current IRA holdings, staying under contribution limits, and filing the right forms. If you’re unsure, it’s always smart to talk with a tax professional before pulling the trigger.

Next up: Wondering if you should convert more of your Traditional IRA to a Roth?
Check out: Roth Conversion: Is it Right for You in 2025?