If your income is too high to contribute directly to a Roth IRA, but you want to save additional after-tax income in a tax-advantaged way, there is a solution: Backdoor Roth IRAs can allow high earners to continue building tax-free retirement savings when done correctly.
In this guide, we’ll explain how Backdoor Roth IRAs work, who they’re best for, and common mistakes to avoid.
What Is a Backdoor Roth IRA?
A Backdoor Roth IRA is a two-step strategy, not a separate account:
Contribute to a Traditional IRA (non-deductible)
Convert that contribution to a Roth IRA
Because the original contribution was made with after-tax dollars, the conversion itself is often tax-free if structured properly.
Who Is a Good Candidate for a Backdoor Roth IRA?
Backdoor Roth IRAs are typically best for individuals who:
Earn too much to contribute directly to a Roth IRA ($150k if single filer; $236k if married filing jointly)
Have little or no pre-tax money in Traditional IRAs
Want tax-free growth and flexibility in retirement
Have already maximized their 401(k) or employer plan
This strategy is especially popular with:
Corporate executives
Business owners
Dual-income households
2025 Contribution Limits
IRA contribution limit: $7,000
Age 50+: Additional $1,000 catch-up
Income limits apply only to direct Roth contributions, not conversions
The Pro-Rata Rule (The #1 Mistake to Avoid)
The pro-rata rule determines how much of your conversion is taxable.
If you have any pre-tax money in:
Traditional IRAs
SEP IRAs
SIMPLE IRAs
The IRS requires your conversion to be treated as a proportionate mix of pre-tax and after-tax dollars.
Example:
You contribute $7,000 after-tax
You already have $93,000 in pre-tax IRAs
Only 7% of your conversion is tax-free, and unfortunately, the rest is taxable.
How to Avoid the Pro-Rata Trap
Strategies may include:
Rolling pre-tax IRA assets into an employer 401(k) (if allowed)
Delaying the strategy until IRA balances are cleared
Using alternative tax-efficient investment vehicles
Every situation is different, but Virgil Wealth can help you navigate your particular situation.
Step-by-Step: How a Backdoor Roth IRA Works
Open a Traditional IRA
Make a non-deductible contribution
Convert the funds to a Roth IRA
Invest the money inside the Roth IRA
File IRS Form 8606 to track after-tax contributions
Tax Reporting: What You Need to File
Each year you do a Backdoor Roth IRA, you must file:
Form 8606, which reports non-deductible contributions and conversions
Poor reporting can result in double taxation or IRS notices.
Is a Backdoor Roth IRA Worth It?
Pros:
Tax-free growth
No required minimum distributions (RMDs)
Greater flexibility in retirement
Valuable estate planning tool
Cons:
Complex tax rules
Not ideal for those with large pre-tax IRAs
Requires careful coordination with your tax return
There are pros and cons, but when done correctly, backdoor Roth IRAs can supercharge your savings.
Final Thoughts
A Backdoor Roth IRA can be a powerful tool for high earners — but mistakes can erase the benefits quickly. Understanding the rules, timing, and tax implications is critical.
At Virgil Wealth, we help clients integrate Roth strategies into a comprehensive financial plan, ensuring every decision aligns with their long-term goals.