The backdoor Roth IRA works because Congress removed the income limit on Roth conversions in 2010, while keeping the income limit on direct Roth contributions. You exploit the gap: contribute to traditional IRA (no income limit), then immediately convert to Roth.
Who Needs the Backdoor Roth?
- •Single filers earning above $165,000 MAGI
- •Married filers earning above $246,000 MAGI
- •Anyone who wants to contribute to a Roth IRA but earns too much
- •2025 contribution limit: $7,000 ($8,000 if age 50+)
Step-by-Step: How to Do the Backdoor Roth
- 1.Open a traditional IRA at Fidelity, Vanguard, or Schwab if you don't have one
- 2.Contribute $7,000 (after-tax — do NOT deduct on taxes)
- 3.Leave in money market/cash — don't invest it (to avoid a wash if market moves between steps)
- 4.Wait 1–2 business days for the contribution to settle
- 5.Initiate a Roth conversion of the full amount to your Roth IRA at the same brokerage
- 6.At tax time: File Form 8606 to report the non-deductible contribution and conversion. You owe $0 in additional tax if no earnings accumulated.
The Pro-Rata Rule: The #1 Mistake to Avoid
If you have pre-tax money in ANY traditional IRA (including SEP-IRA and SIMPLE IRA), the IRS treats all your traditional IRA money as one pool for conversion purposes. You can't selectively convert only the after-tax portion. Solution: Roll your pre-tax traditional IRA funds into your employer's 401(k) before doing the backdoor. Most 401(k) plans accept IRA rollovers.
Do the backdoor Roth early each year — January if possible. This maximizes the years of tax-free compounding. Waiting until April 15 is allowed but means a year's less of tax-free growth.
The backdoor Roth has been legal since 2010 and Congress has repeatedly declined to close it despite attempts. Do it every year. Over 20 years, $7,000/year growing tax-free at 7% = ~$287,000 in your Roth — completely tax-free at withdrawal.