High earners are locked out of contributing directly to Roth IRAs once income passes $165,000 for single filers and $246,000 for joint filers in 2025.
Unless you know this workaround called a Backdoor Roth IRA.
How the Backdoor Roth IRA Works
- Make a nondeductible IRA contribution: Contribute to a Traditional IRA without taking the tax deduction. Up to $7,000 in 2025 (or $8,000 if you’re over 50).
- Convert to a Roth IRA: Immediately convert that Traditional IRA into a Roth IRA. If you do this right away, before any growth occurs, you’ll owe zero additional taxes on the conversion.
A Word of Caution: The Pro-Rata Rule
Here is where people often trip up. If you already have other pre-tax IRA balances, the IRS requires you to convert proportionally, or pro-rata.
For example, suppose you have $63,000 in an old rollover IRA and add a $7,000 nondeductible contribution with the intention of doing a backdoor Roth. Your total IRA balance becomes $70,000, but only $7,000 is after-tax, which is 10% of your total IRA balance. When you then convert funds to a Roth IRA, only 10% of the conversion is tax-free, and 90% becomes taxable, regardless of how much you convert. This is why pretax IRA balances can significantly reduce the tax efficiency of the backdoor Roth strategy.
Timing Matters Too
Another key detail: Complete the contribution and conversion within the same tax year. Delays can create complications and potentially increase your tax bill.
The Bottom Line
The Backdoor Roth IRA is one of the most effective ways for high earners to build tax-free retirement income. Done correctly, it provides long-term growth potential, flexibility, and even estate planning advantages.
At JGP Wealth Management, we guide clients through the Backdoor Roth process every year, making sure it’s done correctly and aligned with their overall financial plan. Schedule a call with our team today to explore whether this strategy is right for you.
