Backdoor Roth IRA: A High Earner's Guide

Roth IRA income limits don't have to stop you. The backdoor Roth strategy lets high earners contribute to a Roth IRA regardless of income—if you do it right.

The Income Problem

Direct Roth IRA contributions are phased out at higher incomes. For 2024:

• Single filers: Phase-out begins at $146,000, fully phased out at $161,000
• Married filing jointly: Phase-out begins at $230,000, fully phased out at $240,000

If you earn above these limits, you can't contribute directly to a Roth IRA. But there's a workaround.

The Backdoor Strategy

There's no income limit for traditional IRA contributions (though the deduction may be limited). And there's no income limit for Roth conversions. The backdoor strategy combines these:

1. Contribute to a traditional IRA - Make a non-deductible contribution ($7,000 for 2024, $8,000 if 50+)
2. Convert to Roth IRA - Convert the traditional IRA to Roth, ideally before it earns much
3. Pay minimal tax - Since the contribution was after-tax, only the earnings are taxable

The Pro-Rata Rule Trap

Example: You have $93,000 in a traditional IRA from old rollovers, plus you contribute $7,000 non-deductible. Total: $100,000, of which $7,000 (7%) is after-tax.

If you convert $7,000, only 7% ($490) is tax-free. The other $6,510 is taxable.

Solutions to the Pro-Rata Problem

• Roll pre-tax IRA money into a 401(k) - If your employer plan accepts rollovers, this removes the pre-tax money from the calculation
• Convert everything - If you're willing to pay tax on the full amount, convert all your traditional IRA money to Roth
• Accept partial taxation - Do the math; it might still be worth it

The Mega Backdoor Roth

The "mega backdoor Roth" is a separate, larger strategy using your 401(k):

1. Max out your regular 401(k) contributions ($23,000 in 2024, $30,500 if 50+)
2. Make after-tax (not Roth) contributions to your 401(k) up to the total limit ($69,000 in 2024)
3. Roll those after-tax contributions to a Roth IRA or Roth 401(k)

This can add $30,000+ to your annual Roth contributions—far more than the regular backdoor.

Requirements:

• Your 401(k) must allow after-tax contributions (not all do)
• Your 401(k) must allow in-service withdrawals or in-plan conversions

Legal Status

The backdoor Roth has been used for over a decade and is widely accepted. However:

• The IRS has never explicitly blessed it
• Congress has proposed eliminating it multiple times (most recently in Build Back Better)
• It remains legal as of 2024, but could change

Step-by-Step: Doing It Right

1. Verify you have no pre-tax IRA money (or deal with it first)
2. Open a traditional IRA if you don't have one
3. Make a non-deductible contribution
4. Wait a short time (opinions vary from immediately to 30 days)
5. Convert to Roth
6. File Form 8606 with your taxes to document the non-deductible contribution

How Talk Through Wealth Helps

Model the impact of backdoor Roth on your retirement:

• Calculate the pro-rata tax impact based on your IRA balances
• Compare regular backdoor vs. mega backdoor options
• Project long-term growth of Roth vs. taxable investments
• Factor backdoor contributions into your overall retirement plan
• Model the value of rolling pre-tax IRA into 401(k)