Backdoor Roth IRA
A strategy allowing high-income earners to contribute to a Roth IRA by first making a non-deductible traditional IRA contribution and then converting it.
What is Backdoor Roth?
The backdoor Roth IRA is a tax strategy that allows high-income earners — who are otherwise ineligible for direct Roth IRA contributions due to income limits — to effectively make Roth contributions. The process involves two steps: (1) make a non-deductible (after-tax) contribution to a traditional IRA (no income limit applies to non-deductible contributions), then (2) convert the traditional IRA to a Roth IRA. If the traditional IRA contains only the newly contributed after-tax funds, the conversion is generally tax-free. Complications arise from the 'pro-rata rule': if the taxpayer has other pre-tax traditional IRA funds, the conversion is partially taxable. The strategy works most cleanly when the taxpayer has no existing traditional IRA balances.
Example
A married couple filing jointly earns $320,000 — above the 2025 Roth IRA income phase-out limit of $236,000. They each contribute $7,000 to a non-deductible traditional IRA, then immediately convert both accounts to Roth IRAs. With no other traditional IRA balances, the conversions are tax-free. They effectively 'backdoor' $14,000 into Roth accounts for the year.