Backdoor Roth IRA – How High-Income Earners Can Save More for Retirement

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Plenty of financial blogs have extolled the benefits of Roth IRAs (ours included: https://www.andrewsllc.com/post/should-you-do-a-roth-conversion-3-major-benefits)

Roth IRAs can be a tax-efficient way to save for retirement, but they also come with one major drawback for many high-income earners: the ability to contribute to a Roth IRA is phased out once you exceed a certain level of income.

Not being able to regularly contribute to a Roth IRA can feel like a roadblock on the path to building wealth. The growth of investments within a Roth IRA are earned tax-free, a substantial tax advantage. They provide flexibility when deciding which accounts to draw from in retirement. No one expects to have all their retirement savings in Roth, but it’s a useful piece of the retirement puzzle. 

The good news for high-income earners is that contributions to a Roth IRA may still be possible through backdoor Roth IRA contributions.

In today’s post, you’ll learn:

• How much income you can earn before being ineligible for direct Roth IRA contributions

• How to make backdoor Roth IRA contributions correctly and what mistakes to avoid

• The tax impact of backdoor contributions and what tax forms you’ll need to file

Direct Roth IRA Contribution Income Limits (2025)

First let’s review the rules regarding direct Roth IRA contributions in 2025.

How it works:

• Earned income requirement: you or your spouse must have earned income from work to contribute. This generally means taxable compensation (wages, salary, tips, self-employment earnings). Passive income from investments and real estate doesn’t count.

• Contribution timing: you have until the tax filing deadline in April to make a current year contribution. April 15, 2026 is the deadline for the 2025 tax year, for example.

• Contribution limits (2025): $7,000 per person under age 50. $8,000 per person age 50 or older.

• Income eligibility: Based on Modified Adjusted Gross Income (MAGI).

2025

Filing Status	Full Contribution if MAGI Below	Partial if Between	None if Above
Single / Head of Household	$150,000	$150,000–$165,000	$165,000
Married Filing Jointly	$236,000	$236,000–$246,000	$246,000
Married Filing Separately (if lived with spouse)	—	$0–$10,000	$10,000

Remember that if you are married filing jointly, the income test above applies to your joint income. If your spouse is not working but you earn more than $236,000 MAGI, you’ll both be ineligible to make fully maxed Roth IRA contributions.

If your modified AGI exceeds the limits above, you need to consider backdoor Roth contributions.

Backdoor Roth IRA – How High Earners Contribute and Mistakes to Avoid

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First, let’s discuss how to make a backdoor Roth contribution.

1)  Make a non-deductible contribution to a Traditional IRA

a.  Contribute $7,000 or $8,000 if age 50 or above.

b.  The contribution is non-deductible, meaning the dollars are after-tax.

2)  Convert the contribution to your Roth IRA

a.  You don’t need to wait to take this step. Previously the guidance was to delay converting the funds to Roth due to a rule called The Step Transaction Doctrine. The IRS has not imposed a formal waiting period between making the non-deductible contribution and converting it to Roth IRA.

3)  File tax form 8606 with your annual tax return to report your non-deductible

contribution.

For high earners, this is the way to get funds in a Roth IRA despite the income limits.

If your income is below the threshold to make a Roth IRA contribution, you can make a direct contribution and skip the backdoor process.

Spousal IRA rules still apply. If you are working but your spouse is not, you can do backdoor Roth contributions for both of you based on your earnings.

Additionally, your 401k plan at work may offer a Roth 401k option. You can make Roth 401k contributions to avoid the income limits and pro-rata rules that apply with Roth IRAs. 401k plans also have higher contribution limits than IRAs. 

Avoiding Mistakes – the Pro-Rata Rule

One of the common pitfalls I see with backdoor Roth contributions is violating the pro-rata rule and causing unintended taxes.

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If you have existing pre-tax IRA balances (including Traditional, SEP, and Simple IRAs), a portion of your backdoor contribution may be taxable. That’s because the IRS looks at all your IRA accounts combined when determining how much of a conversion is taxable. You can’t choose to convert only the after-tax portion of your IRA.

Example: John is a high-income earner and wants to make a backdoor Roth contribution. He has $93,000 in an existing pre-tax IRA. He makes a nondeductible $7,000 contribution intending to use the backdoor Roth IRA. When he converts $7,000 to a Roth IRA, the IRS applies the pro-rata rule.

Total IRA balance before the conversion: $100,000

After-tax basis: $7,000 (7% of total IRA balance)

The pro-rata rule says only 7% of his $7,000 contribution ($490) is tax-free. The remaining $6,510 is taxable income.

This gets messy from a tax reporting standpoint. Since only a portion of John’s conversion was after-tax, he will need to continue tracking his IRA basis every year on Form 8606. It’s a recordkeeping issue that can persist for several years and must be explained if you ever change tax preparers in the future.

Solution: Roll your pre-tax IRAs into your company 401k to empty your IRAs. If your pre-tax IRA balance is zero, you avoid the pro-rata rule and do a backdoor contribution using after-tax funds. No need to keep track of your IRA basis year after year if you contribute non-deductible funds and do a conversion immediately after.

It’s best practice to confirm with your employer’s HR department that the 401k can accept incoming rollovers from IRAs first.

Regarding spousal IRAs, remember that the pro-rata rule applies to each spouse individually. The non-working spouse must empty their pre-tax IRAs to avoid triggering the pro-rata rule.

Tax Impact and What Tax Forms You’ll Need

If you avoid the pro-rata rule and convert your non-deductible contribution immediately, you’ll have no additional taxes due in the year you contribute.

Once the conversion is made to the Roth IRA, the investment growth will be tax-free. That’s ultimately why you’re going through all this trouble – to get money into Roth where your investments will appreciate and earn income without being taxable in the future.

Tax Forms Needed to Properly Report Backdoor Contributions

As mentioned earlier, you’ll need to file Form 8606 with your tax return in any year you make a non-deductible IRA contribution or complete a Roth conversion. This form reports that your contribution was non-deductible, ensuring you won’t have to pay taxes again on the conversion step.

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Form 8606 has two key parts. Part 1 reports non-deductible contributions to Traditional IRAs and tracks your after-tax basis over time. Part 2 reports conversions made from Traditional IRA to Roth IRA. Both parts need to be filled out on the form to properly account for your backdoor contribution.  

Additionally, you’ll receive Form 1099-R from your account custodian. This will show the amount distributed from your IRA during the conversion.  

On Form 1040, the full amount of the conversion ($7,000/$8,000 if maxed out) will show up as an IRA distribution. If you’ve avoided violating the pro-rata rule and converted only after-tax funds, the “Taxable amount” on that line should be $0.

In Summary

High-income earners who exceed Roth IRA income limits can still build their tax-free Roth bucket through a backdoor Roth contribution. There are some steps that must be taken first to ensure it’s done correctly; mainly avoiding the pro-rata rule and filing the correct tax forms. Each situation is unique so it’s best to consult your financial advisor and tax professional before completing a backdoor Roth contribution.

 

Thanks for reading! Have a great day.

Travis

Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor. This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.