Despite its slightly shady-sounding name, the Backdoor Roth contribution is a perfectly legal and efficient strategy that can be used by higher earners to be able to make Roth IRA contributions that they are otherwise prohibited from making. But care is required.
In this article, I will address:
Who needs to make use of a Backdoor Roth contribution?
Who does not need to make use of it?
What is the process for implementing the strategy and by when does it have to be completed?
The one big thing that you need to be VERY aware and careful of before deciding whether or not to implement a Backdoor Roth strategy
If your Modified Adjusted Gross Income (MAGI)*** for the calendar year ending December 31st 2026 is going to be above the 2026 IRS upper income limits which are $168k for a Single filer or a Head of Household (HoH) filer and $252k total of the two MAGIs for those filing Married Filing Jointly (MFJ), then you are not permitted to make a direct contribution to a Roth IRA for that year and will face penalties if you do so.
If you are a Married Filing Separately (MFS) filer and did NOT live with your spouse at any time during the tax year in question then the MAGI threshold to contribute directly to your Roth IRA is the same as a Single Filer/HoH. But if you file MFS and DID live at any time with a spouse during the tax year in question, then you are subject to a MAGI threshold of only $10k.
For a review and an explanation of all the most recent contribution limits of Roth IRAs as well as Traditional IRAs and workplace retirement plans, see my article “New 401k and IRA Contribution Limits for 2026”.
Your tax preparer will be able to tell you what your current year MAGI is once they have all your information.
*** See attachment below for what constitutes MAGI and how it may differ from simply Earned Income.
Note that if you are a Single/HoH filer/MFS filer who did not live with their spouse during the year and your MAGI in 2026 is going to be above $153k but below $168k or a MFJ filer whose total joint MAGI with your spouse is going to be above $242k but below $252k then you are entitled to a partial, pro-rated direct contribution, but will need to use the Backdoor method for the balance.
So if your MAGI for the 2026 is less than $153k (Single filer/HoH/MFS and didn’t live with your spouse) or less than a total between the two of you of $242k (MFJ), then you have no need to employ the backdoor contribution strategy and can directly make up to the maximum contribution for this year in one step (2026 maximum is $7500 per individual or $8600 if aged 50 or over) any time before April 2027 by simply contributing as normal.
In fact, you have no need to read this article any further. Enjoy the rest of your day! :-)
For the rest of you, here is the best-practice process for making a Backdoor Roth IRA contribution:
Before early- to mid-March of the year following the tax year for which you are contributing, (do not leave it till the last few days before tax day in April) put the amount you want to contribute by this method into a Traditional IRA, NOT a Roth. If contributing after January 1st, make sure the contribution is tagged as being for the “older” previous year, not for the “newer” current year. If you do not have a Traditional IRA in place then open one for this purpose at the same provider where you hold your Roth, it's usually very easy to do. Because of how much you earn, this will be considered a non-deductible contribution to the Traditional IRA, i.e., you get no tax break this year for this contribution.
Wait at least two or three business days (days that the stock market is open), just to be sure. The reason for this is that the IRS still prefers to see this as a two-step process.
Rollover the contributed amount from your Traditional IRA to your Roth IRA at the same provider as a "same trustee transfer". This is a conversion. Your investment platform provider support staff or your financial advisor can help implement this for you. Note: Anglia Advisors’ clients for whom I directly manage assets or have Advisor Oversight can simply request me to implement the whole process on your behalf.
Assuming the Traditional IRA was empty before you contributed to it (see below, very important), your only potential tax liability for this transaction is on any short term capital gain that may have occurred during the short period of time that it sat in the Traditional IRA account before the conversion.
Voila! The contribution dollars are now in your Roth IRA and all future qualified withdrawals will be tax and penalty free.
BUT THERE IS A VERY BIG "HOWEVER .." !!
.. The Pro-Rata Rule.
The IRS requires that rollovers from Traditional IRAs to Roth IRAs to be done pro-rata. If you have no existing balance in any Traditional-style IRAs, you do not need to worry about this but if you do already have any money sitting in any of these Traditional-style IRAs, then please read the following very carefully before deciding upon implementing a Backdoor Roth contribution strategy.
Here's how it works: When determining any tax bill on a conversion from a Traditional IRA to a Roth IRA, the IRS is going to look at all of your existing Traditional-type IRA accounts combined as of year-end, that is; the total of any regular Traditional IRAs, any Rollover IRAs, any SEP IRAs and/or any SIMPLE IRAs.
However, Traditional 401k/403b/457 balances do not count as an existing balance for this purpose and need not be considered in this equation and nor do any inherited IRAs (which are not allowed be converted to a Roth anyhow).
If any of your existing Traditional-type IRAs already have a balance of pre-tax money in place (as would be the case if you had previously-made deductible contributions or had earlier rolled over a 401k or other workplace plan into any kind of Traditional IRA, for example) prior to the conversion, then that ratio will determine what percentage of the money you convert to a Roth is going to be taxable. You can't just pick and choose to convert only the specific piece of non-deductible money you just contributed; the IRS won't allow that.
Think of it this way; your existing Traditional IRA is a mug of seven ounces of black coffee. Your intended Backdoor contribution is one ounce of milk. When you pour the milk into the coffee you now have eight ounces of milky coffee and if you take one ounce out of that to put into your Roth IRA, 7/8ths of it will be from the original balance which is pretax and will need to be added to your income that year and is thereby taxable at your marginal income tax rate.
Example 1: You have no existing balance in any Traditional-type IRA(s) .. you contribute $7500 to your Traditional IRA, wait at least two business days, then convert all of it into your Roth IRA. Your tax liability is limited to any capital gains that might have been made in the Traditional IRA during that short waiting period, so likely negligible, if any at all.
Example 2: You already have a total existing balance of $92,500 of pre-tax $$ (from prior deductible contributions and/or maybe 401k rollovers) in your Traditional-type IRA(s). The $7500 that you add as a non-deductible contribution is immediately commingled with the existing pre-tax $92,500, creating a total balance of $100k of which 92.5% is as-yet-untaxed dollars and only 7.5% is already-taxed dollars. Whatever amount you then choose to convert to a Roth IRA will therefore be deemed to be 92.5% untaxed and 7.5% already-taxed. So if you then convert $7500 to your Roth, then 92.5% of that ($6,937.50) will be taxed right away by having it added to your taxable income for the year of the conversion and only 7.5% ($562.50) will be converted tax-free. The money to pay this additional income tax will need to come from a source other than the IRA itself.
This pro-rata rule means that the Backdoor Roth contribution may not a good idea if you retain a significant existing balance in any Traditional-type IRAs and do not want to convert the entire and "bring forward" the tax bill on the untaxed portion of whatever amount you convert (bear in mind though, the $ in your Traditional IRA has never been taxed and will be one day anyhow, you are just bringing that day forward for a portion of it if you have existing untaxed balances - so this process does not create a tax liability that you wouldn't otherwise have).
Note also that, if you are prepared to pay the taxes now on a conversion (which you may be inclined to do if, for instance, you believe that future tax rates on your withdrawals may be significantly higher and you are lucky enough to have the funds currently available elsewhere to make the tax payments or if you are presently experiencing an "outlier" low income year and therefore are temporarily in a lower tax bracket than usual), you can actually convert as much of the Traditional IRA balance as you want.
You are not restricted to being able to convert just the up to the $7500 that you may have just put into the Traditional IRA - but the ratio-ed percentage of taxable/non taxable will remain the same and apply to whatever amount it is that you convert (e.g., in Example 2 above if you decide to instead convert, say, $20k then that amount will be pulled from the newly-commingled total pool of $100k and $18,500 of it - 92.5% of the total converted amount - would be added to your taxable income the year of the conversion and only $1,500 of it - 7.5% of the total converted amount - would be converted tax-free).
But the result will be that the converted funds are now in your Roth IRA instead of your Traditional IRA and therefore will never be taxed again.
Another option, which will not trigger any immediate tax liability but rather kicks the tax can down the road to retirement, would be to roll your Traditional IRA to the pretax bucket of your workplace 401k or 403b plan. The vast majority of workplace plans will accept inbound transfers of Traditional IRA funds and will help you accomplish the rollover. This is a good option assuming that you have a “good” 401k or 403b plan with low cost index or target date funds and not a crappy plan packed with expensive, actively-managed options.
This way, you would now have an empty Traditional IRA into which you can place your backdoor contribution every year and then convert it to Roth with no tax consequences (see Example 1 above).
Below is an explanation of the difference between Modified Adjusted Gross Income and plain old Earned Income ..
For Anglia Advisors clients, I am happy to offer assistance in coming to a decision on and/or implementing this strategy.
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