- Updated for 2025

Roth IRA accounts are one of the most tax-efficient retirement savings vehicles. But if your income exceeds the phase-out limits, you cannot contribute directly to your Roth IRA. Enter the so-called “backdoor Roth,” a “legal” loophole allowing you to add to your Roth IRA when your income is over the limit.

There are a few critical requirements that you must satisfy to execute the strategy, but if you’re eligible, you could save an extra $7,000 per year in your Roth IRA, $14,000 if you’re married, and an extra $1,000 if your age 50 or older (based on 2024 & 2025 contribution limits, which are indexed to inflation). However, this strategy is not without risk.

The basic strategy is a two-step process:

1. Make a “non-deductible” (i.e., after-tax) contribution to a traditional IRA. Unlike a deductible IRA contribution, there are no income phaseouts.

2. Execute a Roth conversion, moving the funds you contributed to your traditional IRA into your Roth account. If the only balance in your traditional IRAs is after-tax money, you won’t owe any tax upon converting it to a Roth.

Now for the Caveats:

Be careful if you have existing pre-tax money in any IRA:

If you have any existing IRAs with pre-tax money in them (either from a prior deductible contribution, a rollover from an old employer plan, or earnings on any contributed amounts that haven’t yet been taxed, including SEP and SIMPLE IRAs), any conversions you execute will cause you to be taxed on all or a portion of that pre-tax money. You cannot convert just the after-tax contribution. All conversions must be pro-rata, proportionally between pre-tax and after-tax contributions as of the end of the calendar year.

What to do if you have pre-tax IRA balances:

You could go ahead and convert them and pay the tax now. This can be a good strategy if the pre-tax balances are relatively small. However, if doing this would put you in a higher tax bracket or you don’t have the cash on hand to pay the tax that will be due, converting everything is probably not optimal.

Alternatively, if your employer has a 401(k) or 403(b) plan that allows for roll-ins, you can move those pre-tax dollars into your employer plan before you make the non-deductible contribution. This is aptly known in the business as “vacuuming” your IRA. Employer plan balances are not included in figuring out the taxability of a Roth conversion.

Backdoor Roth contributions seem sketchy… is this legal?

When Congress passed the law in 2010 to allow for Roth conversions (i.e., converting savings held in a traditional IRA to a Roth IRA by paying the taxes now), they inadvertently created a loophole for higher earners to make regular Roth contributions.

To be clear, there is no such thing as a “Backdoor Roth” in the eyes of the IRS, which has never issued any guidance on the strategy and whether or not it violates long-held rules against “step-transactions.” According to the IRS, any multi-step transaction involving individual steps that are permitted in isolation but when combined to produce an outcome that is otherwise prohibited is not allowed. It follows that, if you earn too much to contribute directly to a Roth, you shouldn’t be allowed to execute a step-transaction that produces the same prohibited result. The penalties for overfunding a Roth IRA are steep: a 6% excise tax potentially applied to years of compounded earnings! For this reason, many advisors and tax professionals recommended caution when executing this strategy, potentially separating the contribution and the conversion by an extended period of time to break up the two steps.

Then came the 2017 Tax Cuts and Jobs Act, which included several references to the “backdoor Roth” strategy in multiple footnotes. This has been widely interpreted as providing Congressional blessing for the strategy and has relaxed fears that the IRS would close the loophole or, worse, go after folks for violating rules step-transactions.

In 2021, Congress proposed eliminating the backdoor Roth IRA as part of the Build Back Better Act, but it was not included in the final bill. So, for now, the strategy remains widely accepted in the financial planning and tax community.

Should I make a backdoor Roth Contribution?

You should consult your CPA and weigh the risks. I generally recommend this strategy to clients who wish to pursue it but exercise caution if there are existing pre-tax balances in traditional IRAs, rollover IRAs, SEP, or SIMPLE IRAs.

Optimizing Roth contributions and conversions can produce significant tax savings over a lifetime. Navigating the many factors involved (see Optimizing Traditional vs Roth Retirement Savings) is one of the significant benefits of working with a knowledgeable financial planner who understands these intricacies and keeps up to date.