Who doesn’t appreciate tax-free investment growth, tax-free withdrawals, and not having to take required minimum distributions (RMDs) from their retirement account?
You’re likely aware that these are all great benefits of Roth IRAs. And you might also know that if you earn more than $165,000 (single) or $236,000 (married filing jointly), you’re not eligible to contribute to a Roth IRA. Those are 2025 limits, based on modified adjusted gross income (MAGI); for 2026, the phase out for eligibility rises as follows:
2025 MAGI eligibility phase-out | 2026 MAGI eligibility phase-out | |
Single, married filing separately, head of household | $150,000 - $164,999 | $153,000 - $168,000 |
Married filing jointly | $236,000 - $246,000 | $242,000 - $252,000 |
The good news for high-income taxpayers is that you can still contribute to a Roth IRA indirectly through a process, or route, called the backdoor Roth IRA.
How to make a backdoor Roth IRA contribution
Here’s how it works:
1. Open a traditional IRA.
2. Make a nondeductible (no up-front tax break) contribution to that account. Make sure to file IRS Form 8606 every year you do this.
3. Once the funds settle, convert them to a Roth IRA. Do this as soon as possible to avoid having to pay tax on any growth.
The IRA contribution limit for 2025 is $7,000, with a $1,000 catch-up contribution for those age 50 and older. These limits are projected to rise to $7,500 and $1,100, respectively, for 2026.
Many investors find it helpful to automate the process—setting a calendar reminder each year to make their nondeductible IRA contribution, completing the conversion, and filing Form 8606. This simple routine helps ensure consistency and minimizes the chance of missing a step that could lead to unnecessary taxes or paperwork headaches. If your income varies from year to year, consider reviewing your eligibility and strategy annually, as changes in earnings or legislation could impact whether the backdoor approach remains a good fit for you.
Beware of the pro-rata rule
If you’ve already got other IRA accounts with pre-tax money in them, things get a little trickier. The IRS’s “pro rata rule” says you have to look at all of your IRAs together and figure out what portion of your total balance comes from after-tax versus pre-tax contributions. That mix determines how much of your Roth conversion will be taxable.
For example, if only 10% of your total IRA balance came from after-tax contributions, then 90% of your conversion would be taxed as ordinary income.
That’s why the backdoor Roth IRA tends to work best for people who don’t have much (or any) pre-tax money sitting in traditional IRAs. It keeps things simple—and tax-efficient.
Here in the Valley, where many residents have rolled over old retirement plans after switching jobs, it’s worth double-checking what’s in your existing IRAs before taking the backdoor Roth route.
Pros and cons of the backdoor Roth IRA
Pros:
• Receive Roth IRA benefits despite pesky income restrictions.
• Tax efficiency – enjoy tax-free growth and withdrawals.
• Contributions can be withdrawn penalty-free after five years.
• Tax diversification – for any given year, you can decide whether it is more advantageous to take taxable or tax-free withdrawals.
• Avoid RMDs – your assets can keep growing tax-free for your life and beyond.
• Create a tax-free inheritance.
Cons:
• You must pay attention to tax planning and ensure proper documentation.
• Due to the pro-rata rule, you might owe taxes based on existing traditional IRA assets.
• Converted assets are subject to a five-year holding period to avoid a 10% early withdrawal penalty before age 59 ½; earnings are subject to a five-year rule for tax-free withdrawals at any age.
In practice, I’ve seen clients use backdoor Roth IRAs to steadily build significant tax-free retirement savings over time. For example, one couple who diligently made annual conversions for a decade accumulated a high six-figure Roth balance that now grows tax-free and offers them flexibility in retirement. The key takeaway? Small, consistent actions, paired with careful tax planning, can add up to meaningful long-term advantages.
Always speak with your tax pro
Before employing any new tax strategy, be sure to check in with your tax professional to get the best guidance for your particular situation. This article is for informational purposes only and should not be construed as tax advice.