The Backdoor Roth process
A Backdoor Roth IRA is a method that high-income earners can use to contribute to a Roth IRA if one surpasses the income limits for direct contributions to a Roth IRA. As of 2024, these limits are $146,000 if filing as 'single' and $230,000 if filing as 'married filing jointly'. The benefits are enormous: the post-tax dollars you contribute to a Roth IRA can grow tax-free for life, and if needed, the principal can be withdrawn at any time without penalty.
| Year | Total contributions | Balance with market growth | Amount not subject to tax |
| 1 | $7,000 | $7,490 | $490 |
| 10 | $70K | $103K | $33K |
| 20 | $140K | $307K | $167K |
| 30 | $210K | $708K | $498K |
However, there is one major caveat: the IRS hates when after-tax and pre-tax dollars mix, and you have to ensure you have no pre-tax funds sitting in a Traditional IRA. If you do, it will be subject to the IRS's pro-rata rule when you attempt to do a Backdoor Roth. One simple way to get around this is to rollover your Traditional IRA into a Traditional 401(k).
Assuming you have no pre-tax funds in your Traditional IRA, the process is pretty straightforward:
1. Make a Traditional IRA Contribution: since there are no income limits for contributing to a Traditional IRA, you first make a non-deductible contribution to a Traditional IRA account. Non-deductible means that you don't get a tax deduction for the contribution.
2. Convert your Traditional IRA to Roth IRA: after making the contribution to the Traditional IRA, convert that money into a Roth IRA. This conversion is allowed regardless of income level. Schwab, Fidelity, and Vanguard all make this seamless and as simple as transferring funds between accounts (assuming that your Traditional IRA and Roth IRA are with the same brokerage). I recommend to do this as you complete Step 1.
3. Report your Backdoor Roth on your taxes: to correctly report your Backdoor Roth IRA, use "Form 8606 - Nondeductible IRAs". In Part I of the form, you'll report that your traditional IRA contribution is classified as nondeductible. In Part II, you'll inform the IRS that you converted the entire nondeductible contribution to a Roth IRA. There are a number of guides online on how to do this in FreeTaxUSA, TurboTax, and H&R Block.
Is it worth it? In most cases (and once you get over the initial headache of setting it up), yes.