FREE NEWSLETTER
ROTH IRA IS A powerful account. It grows tax-free and withdrawals are tax-free during retirement. Roth IRA also has income limits.
For 2025, if you are filing your taxes as single and make less than $150,000 ($236,000 if married filing jointly) of modified adjusted gross income, you can contribute a maximum amount of $7,000.
But if you make $165,000 (single) or $246,000 (married jointly), you are ineligible to contribute to a Roth IRA directly. Luckily, there is a strategy that allows you to contribute indirectly (or the “backdoor” way).
Backdoor Roth
Backdoor Roth is a strategy that allows high-income earners to contribute to a Roth IRA through a conversion process. The idea is simple: instead of contributing to a Roth IRA, you contribute to a Traditional IRA first and then convert the contributed amount to a Roth IRA.
Before I dive into the strategy, let me give a bit of background on how this strategy came to exist.
Prior to January 1, 2010, you could only convert from a Traditional IRA to a Roth IRA if your adjusted gross income was $100,000 or less. Luckily, after 2010 this income condition was eliminated, which is how the Backdoor Roth came to exist indirectly.
Here is a step-by-step guide:
1. Eliminate traditional IRAs balances
The first step is to roll over all your Traditional IRA, Rollover IRA, Traditional SEP, and Traditional SIMPLE IRAs into 401(k) or 403(b) plans before December 31, 2025. This is because if these accounts don’t have a $0 balance, you will be subject to the pro-rata rule on your conversion.
If you are a solo business owner, you can also roll over these accounts into a Solo 401(k). If you don’t have 401(k) or 403(b) plans available to roll over into, there isn’t much you can do and you should generally avoid this strategy. You could potentially explore a Solo 401(k) for your side hustle, which may allow you to roll over these balances into it.
If you are doing the Backdoor Roth process but get laid off during the year, do not roll over the 401(k) or 403(b) balances into an IRA.
2. Make a non-deductinle contribution to a Traditional IRA
The next step is to contribute to a Traditional IRA. This contribution will be non-deductible. If you don’t have a Traditional IRA account, open one. Fund it with however much you want to contribute, up to the $7,000 limit for 2025.
Note: You or your spouse need to have earned income, such as wages or self-employment income, to contribute (same rule as a direct Roth IRA contribution), even if you are using the Backdoor Roth process.
3. Wait once the money settles
It usually takes a few days for your money to clear the bank and settle in your Traditional IRA. It’s generally recommended not to buy any stocks or ETFs within the account itself. That step should be done after the conversion.
4. Convert to a Roth IRA
Now, you will need to have a Roth IRA account to which you will convert your contribution. It will be easier if both accounts (Roth and Traditional) are with the same broker (e.g. Vanguard, Fidelity and so on), as this will simplify the conversion process.
You can typically complete the conversion online, or you can call your broker and ask them to process the conversion.
Here’s an example of the online conversion:
As part of the process, you will be asked if you want to have any taxes withheld. Make sure to elect not to have any state or local taxes withheld from the conversion.
5. Invest within the Roth IRA
Now that the money is within your Roth IRA, don’t forget to invest it.
6. Notes
It’s generally best to complete both the contribution and conversion within the same calendar year. For example, say you contribute $7,000 for 2025 on 10/1/2025. The money settles on 10/3/2025, and you convert on 10/4/2025.
This is a “clean” conversion and will be easily reported on your tax return (more on this in a bit).
However, say you convert on 1/1/2026. You will actually need two years of tax return filings to correctly report your Backdoor Roth process: 2025 will show the contribution, and 2026 will show the conversion. So it’s best to complete both steps within the same year.
Also, it’s best to convert as soon as the money has settled. This is because your original contribution will likely be placed in a money market fund yielding around 4%, which may generate dividends that are taxable. If you do receive any dividends (say, $2 of income at the end of the month), it’s best to convert them along with your contribution.
7. Tax time
During tax time, you will receive quite a bit of paperwork (Form 1099-R, Form 5498). You need to make sure you enter it correctly in the tax software, or, if you are using a CPA, double-check their work. If you are using a CPA, make sure to tell them that you did a Backdoor Roth for the year.
With your 1040 tax return, you will need to file Form 8606.
Specifically, you will need Parts I and II. Part I will show that you’ve made a non-deductible contribution, and Part II will show your conversion to Roth. Line 18 of Form 8606 should be $0 or just a few dollars of earnings (if you converted more than the original contribution).
If you’ve done everything correctly (this is how you can double-check your CPA), line 4b of Form 1040 will be $0 or a few dollars (if you had earnings).
I hope you learned something new today.
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
Bogdan, just a quick question on the “Eliminate traditional IRA balances” part. Are you saying eliminating a balance by 12/31/2025 would allow a 2025 backdoor Roth? I thought I recalled reading a while back somewhere that the balance had to be $0 for the entire year not just at 12/31. So, eliminating balances in 2025 would allow a 2026 Backdoor but not a 2025. Of course, I could be wrong, but I thought I recalled some goofy timing thing that was a “gotcha”.
The more I research, the more you appear to be correct. Looks like you can do all in same year. I must be thinking of something else or had a bad source. My bad.
One thing that you should have noted is that there is no tax due from inheritance with the traditional IRA so this should be considered.
My problem is that I mixed traditional (deductible) IRA contributions with non-deductible IRA contributions in the same IRA account. There is no way I can know which is which. I did the 8606 forms, but would have to do the pro-rata calculations in any case. And I couldn’t afford to roll that portion of the IRA over to leave only the non-deductible amount alone. Hope this makes sense.
I know your pain. I wasn’t knowledge enough to know the pros/cons of having a non-deductible IRA. Pro-rata will be with me until eternity.
Thanks Bogdan. You explaind this in a way I could understand. It doesn’t apply to us, but might apply to others we know and I could direct them to your article Chris
Last year Vanguard told me I just needed $0 in a particular IRA not all of my IRA’s. Did something change this year? Or did I get bad advice?
Bad advice. I you look at the Form 8606, line 6, it says all (bolded).