What is a backdoor Roth?
Asked by: Guadalupe Bernier | Last update: December 8, 2025Score: 4.8/5 (55 votes)
"Backdoor Roth IRA" is simply a term to describe a strategy used by high-income earners who can't contribute to a Roth IRA because their income is above certain limits. Rather than contribute directly to a Roth, you contribute to a traditional IRA, and then convert it to a Roth.
Who is not eligible for backdoor Roth IRA?
If you earn $161,000 or more as a single taxpayer, or $240,000 or more as a married-filing-jointly taxpayer, then you can't contribute anything directly to a Roth IRA for the 2024 tax year. (These amounts increase to $165,000 and $246,000 respectively for the 2025 tax year.)
What is the downside of Backdoor Roth?
The backdoor Roth IRA strategy is not a tax dodge. When you transfer the assets of a traditional IRA to a Roth IRA, you owe taxes on any funds—the principal as well as any earnings and appreciation—that have not been taxed previously.
What is the 5 year rule for backdoor Roth IRAs?
The simple version says the Roth account needs to have been funded for five years before you withdraw any earnings—even after you've reached age 59½—or you could owe taxes. In addition, nonqualified withdrawals before that age could also trigger a 10% penalty.
Is Backdoor Roth still allowed in 2024?
Yes, you can contribute to a traditional IRA, not take the tax deduction (because you choose not to or because you are income limited) and then convert the traditional IRA to a Roth IRA.
What is a backdoor Roth IRA and how does it help high earners save for retirement?
When to avoid a backdoor Roth IRA?
A backdoor Roth IRA doesn't necessarily benefit everyone, especially those who require access to the converted funds during their five-year window or can meet their savings goals through other retirement accounts. Also shy away from a backdoor Roth conversion if you expect to enter a lower tax bracket after retirement.
Do you get taxed twice on Backdoor Roth?
Say you are over the income limit for Roth contributions, so you make a traditional contribution with no tax deduction and then do a backdoor Roth. Is that conversion taxable? If so, you would be paying tax on that money twice since you paid tax on that income already.
How do I avoid taxes on my Roth backdoor?
Backdoor Roth IRAs may offer several potential benefits for higher-income couples and individuals. For starters, once funds are rolled over from a traditional to a Roth IRA, they can be withdrawn tax-free in retirement if you're at least 59½ years old and have owned the account for at least five years.
Is a Roth IRA better than a 401k?
Unlike a traditional IRA or a traditional 401(k), the Roth IRA is one of the few tax-advantaged accounts that allows you to withdraw the money you've contributed at any time for any reason without paying taxes or penalties.
Is the backdoor Roth going away?
While it doesn't look like they'll be eliminated in 2024, the future of the Backdoor Roth IRA remains a target of proposed legislation. Some legislative efforts have already been taken to limit Roth IRAs or to change tax brackets and RMDs in the future.
How does the rich man's Roth work?
The Rich Man's Roth is an investment plan that allows high-income earners to enjoy tax-free growth of wealth and tax-free income. To achieve this, permanent cash value life insurance can be utilized so that one may build a large nest egg for retirement with no taxes imposed on the money stored in it.
Will backdoor Roth be banned?
No, the backdoor Roth is not considered illegal. The IRS does not classify the backdoor Roth as a form of tax evasion but could best be described as a form of tax avoidance. If you have any misgivings about this financial maneuver in a specific situation, you can consult a more experienced tax professional.
Do I need to report backdoor Roth on taxes?
The tax requirements for a backdoor Roth IRA involve reporting nondeductible contributions to a traditional IRA and subsequent conversions to a Roth IRA on Form 8606. Failing to do so, could cost you more money in IRS penalties and additional taxes on the converted amount.
Is a backdoor Roth worth the hassle?
Whether it is worth it to do a backdoor Roth IRA depends on your financial situation. If, for example, you are in the 22% federal marginal income tax bracket (or under), you should do a Roth IRA to diversify your retirement funds. If your federal income tax bracket reaches 24%, you are at a neutral state, more or less.
What disqualifies you from a Roth IRA?
However, not everyone is eligible to contribute to a Roth IRA. In 2024, single filers with modified adjusted gross incomes (MAGIs) of $161,000 or more cannot contribute to a Roth IRA, while those who are married and file jointly become ineligible once their MAGI reaches $240,000.
Can I do a backdoor Roth if I have a solo 401k?
The mega backdoor Roth Solo 401k allows you to contribute more after-tax dollars than you would in a normal Roth IRA. By contributing money into the Solo 401k plan, you can convert those dollars to Roth funds. With this strategy, you can put more money into a Roth Solo 401k or Roth IRA than otherwise possible.
Can I contribute full $6,000 to IRA if I have a 401k?
Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan).
What is the downside of a Roth IRA?
Cons of Roth IRAs
You don't get an up-front tax break with your contributions (but you may be eligible for a saver's tax credit). When you plan to use your money, withdrawals in retirement are generally tax-free, whereas for traditional IRAs, income taxes are due on withdrawals made during retirement.
Should I split my 401k between Roth and traditional?
If you're not sure where your tax rate, income, and spending will be in retirement, one strategy might be to contribute to both a Roth 401(k) and a traditional 401(k). The combination will provide you with both taxable and tax-free withdrawal options in retirement.
Is Backdoor Roth still allowed in 2025?
Backdoor Roth IRA income limits
The phaseout occurs between $150,000 and $165,000 for single filers and $236,000 and $246,000 for joint filers in 2025. The backdoor method allows those with higher incomes who can't contribute in the typical manner to still take advantage of a Roth IRA.
Can I put $200,000 into a Roth IRA?
More specifically, you cannot contribute to a Roth IRA if your income exceeds $161,000 for single filers or $240,000 for joint filers. The IRS also steadily reduces your Roth IRA contribution limits at incomes between $146,000 and $161,000 for single taxpayers and $230,000 and $240,000 for joint filers.
Can TurboTax handle backdoor Roth?
You will report your nondeductible contribution on your 2023 return and TurboTax will create Form 8606 with the basis on line 14 which will be carried over to 2024. To enter the nondeductible contribution to the traditional IRA on your 2023 return: Open your return.
What is the 5 year rule for Roth conversion?
If fewer than 5 years have passed before you make a withdrawal of earnings, the withdrawal is considered a nonqualified distribution and may be subject to either taxes or penalties (or both).
Is there a salary limit for traditional IRA?
No income limits: As long as you're working, you can keep contributing to a traditional IRA, as well as your 401(k).
What is the backdoor Roth limit for 2024?
To get around these limits, some investors opt to convert their way into a Roth account using a two-step process. It works like this: Open a traditional IRA and make after-tax contributions to it. For 2024, you're allowed to contribute up to $7,000 ($8,000 if you're age 50 or older) per year.