Backdoor Roth IRA: Smart or Risky?
If you’ve looked for ways to build tax-free retirement savings despite income limits, the Backdoor Roth IRA strategy may have come up. For high earners, this can be a powerful planning tool—but it’s important to approach it carefully.
Why Roth IRAs Matter
Roth IRAs offer:
Tax-free growth and tax-free withdrawals in retirement
No required minimum distributions (RMDs) during your lifetime
Greater flexibility for wealth transfer to heirs
But there’s a catch: for 2025, direct Roth contributions are phased out for incomes between $236,000 and $246,000 (married filing jointly) and $150,000 to $165,000 (single filers).
How the Backdoor Roth Works
Make a non-deductible contribution to a Traditional IRA
Convert that amount to a Roth IRA, ideally soon after
If you have no other traditional IRA balances, the conversion is generally tax-free. But—and this is where many get tripped up—if you have other traditional IRAs (including SEP or SIMPLE IRAs), the IRS uses a pro-rata formula that can make part of the conversion taxable.
Key Considerations
Always review your entire IRA landscape before doing a backdoor Roth
In some cases, rolling traditional IRAs into an employer plan (like a solo 401(k)) can help eliminate the tax issue
Timing and coordination with your overall strategy is critical
Bottom line: A backdoor Roth IRA can be a great move for long-term tax savings—but only when done with a full understanding of your IRA balances. If you’re considering this, let’s review your situation first to avoid surprises.