High earners above the Roth income limit can contribute to a traditional IRA and immediately convert it to a Roth. The backdoor Roth conversion is legal and widely used, so use it to unlock tax-free retirement growth at any income. There’s one catch. Pre-tax money already sitting in your IRAs makes part of the conversion taxable.
The Roth income limit only blocks one path into the account. Direct contributions phase out once your income crosses the IRS threshold, but two other moves carry no income cap at all: making a nondeductible contribution to a traditional IRA, and converting a traditional IRA to a Roth.
The backdoor Roth chains those two moves together. You put after-tax dollars into a traditional IRA, then convert the balance to a Roth. Because you already paid tax on the contribution and it hasn’t had time to grow, the conversion adds little or nothing to your tax bill. This isn’t a gray area, either. Congress acknowledged the maneuver in the official notes to the 2017 tax overhaul, and it remains standard practice among financial planners.
Three steps make it work. Contribute after-tax dollars to a traditional IRA, up to the annual IRS limit. Convert to Roth promptly, before earnings accumulate, because any growth between contribution and conversion is taxable. File Form 8606 with your return to document the after-tax basis.
The catch is the pro-rata rule. The IRS treats all your traditional, SEP, and SIMPLE IRAs as one pool. If 90% of that pool is pre-tax money, 90% of your conversion is taxable, no matter which account the converted dollars came from. Say you hold $90,000 of pre-tax IRA money and add a $10,000 after-tax contribution. Converting that $10,000 still creates tax on $9,000 of it. The cleanest fix is rolling pre-tax IRA balances into your current employer’s 401k, which removes them from the calculation entirely.
Check your combined IRA balances before you convert, not after. A backdoor Roth with a zero pre-tax balance is one of the few free lunches in the tax code. One with a large balance is just a tax bill you scheduled yourself.
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