If you’re a high earner, a doctor, executive, entrepreneur, or dual-income couple, you’ve probably hit a frustrating money wall: your income’s too high to contribute to a Roth IRA in the traditional way.
And yet, no matter where you look, you’re informed of how great Roth IRAs are for accumulating tax-free wealth in retirement. So, what’s the answer?
Welcome to Backdoor Roth IRA Conversions, a crafty loophole that enables high-income earners to tap into the Roth benefit, even though they don’t qualify on their own merits.
But before you rush to convert, there’s more to the story than meets the eye.
What Is a Backdoor Roth IRA Conversion and Who Should Consider It?
A Backdoor Roth IRA Conversion is a tactic, and not an individual account, that provides individuals who earn too much money with the means of contributing to a Roth IRA, the chance to do so through a loophole.
Here’s how it works:
- You make contributions to a Traditional IRA on a non-deductible basis.
- You then invest the money into a Roth IRA, typically immediately.
This strategy successfully “avoids” the IRS contribution limits on income for contributions to the Roth IRA. Direct contributions to the Roth IRA phase out beginning at $236,000 for joint filers in 2025, as outlined in IRS Publication 590-A. High-income earners are excluded, unless they employ the backdoor strategy.
But is this a strategy for everyone? It is best suited for:
- Doctors, attorneys, and corporate executives with substantial adjusted gross incomes
- Spouses with joint incomes over the IRS thresholds
- Businessmen who seek tax diversification during retirement
If you fall into this category and have already maxed out your 401(k) or other retirement plans, the Backdoor Roth IRA is an open door to additional tax-free growth, something that few other plans can offer.
Which brings us to the next question: Why bother? Is it worth it at all?
The Big Roth IRA Benefits
On the surface, this workaround appears to be a loophole. But it’s there for a reason; Roth IRAs provide some of the most potent advantages in retirement planning.
That’s why:
Tax-Free Growth and Withdrawals
If you meet two conditions, owning the Roth for five or more years and being age 59½, your withdrawals are 100% tax-free. That’s earnings and growth, as well as your contributions, on which you will never again have to pay taxes. Forbes Advisor states this is a significant advantage for people with high incomes anticipating being in the same or higher tax brackets in the future.
No Required Minimum Distributions (RMDs)
While the Traditional IRAs make you start taking distributions at age 73, there is no such requirement for Roth IRAs. That leaves your account to grow unscathed, offering greater leeway and long-term planning possibilities.
Multi-Generational Wealth Planning
With no RMDs and tax-free distributions, Roth IRAs are a tool with phenomenal wealth-transferring potential. The estate planning benefits of Roth IRAs for families cannot be exaggerated. Your beneficiaries can withdraw tax-free for as long as 10 years from the date of death, according to IRS Publication 590-B.
Of course, the benefits are strong. But the question is still: How do you actually implement this strategy?
Step-by-Step Backdoor Roth IRA Conversion Guide
This is how you do a backdoor Roth IRA, safely and properly:
Contribute to a Non-Deductible Traditional IRA
You may contribute up to $7,000 in 2025 (or $8,000 if age 50 or older). Just ensure it is non-deductible, this is the catch, or you’ll be taxed on conversion.Not sure where to start? Investopedia does a nice job of explaining the technical details.
Convert to a Roth IRA
Most do this immediately after contributing, so they don’t earn any income (which might be taxable). The conversion process is often done online on your custodian’s website.
Report the Conversion Correctly
Report the conversion and non-deductible contribution on your tax return on IRS Form 8606. Otherwise, the IRS will tax your entire conversion. This is an important step if you have to report a backdoor Roth IRA on your tax return.
Piece of cake so far. But here comes the catch, and where most people go wrong.
The Tax Trap
This is where things get a little fuzzy with Backdoor Roth IRA Conversions. Most folks forget one huge rule: the IRS doesn’t just look at the account you’re converting – it looks at all of your Traditional IRAs.
That’s the issue:
If you possess other IRAs with pre-tax money (from deductible contributions or interest), then the IRS uses the pro-rata rule on your conversion. That is, the converted value will be partially taxable, depending on the ratio of pre-tax to post-tax money in all your IRAs.
This makes it important to understand the pro-rata rule simply as:
Assume you contribute $7,000 non-deductible to a new IRA, but you already have $93,000 in another Traditional IRA with pre-tax funds. Your IRA account is now $100,000, 7% of which is after-tax. When you roll over the $7,000, then only 7% is tax-free. The rest, $6,510, will be taxable income.
Can you do a backdoor Roth IRA on other IRAs? Technically, yes, but it might cost you in surprise taxes. To avoid that…
Strategies for Reducing Taxes and Enhancing Value
If you don’t want to pay taxes on a backdoor Roth conversion, there are a number of effective strategies:
Roll Over Pre-Tax IRAs into Your 401(k)
If your plan allows it, you can roll pre-tax IRA funds into a 401(k). They don’t count towards the pro-rata calculation, and you leave your non-deductible contribution behind in the IRA, and the switch is tax-free.
Time It Carefully
If you plan to roll over other IRAs or transfer balances out, you will want to do these prior to converting. The pro-rata rule applies to your total IRA balance as of December 31 in the year you are converting.
These tax planning strategies for doctors and dentists in 2025 are especially beneficial to physicians and dentists who require the benefits of a Roth but are unwilling to risk an unexpected tax bill.
Which leads us to our next question: Is it worth the trouble?
Is a Backdoor Roth IRA Conversion Still Worth It
In general, yes. But it is your choice.
It’s worth it if:
- You expect to be in the same or a larger tax bracket in retirement
- You want tax-free withdrawals
- You don’t wish to play with RMDs
- You have no other ongoing IRAs (or can roll them over into a 401(k))
It may not be worth it if:
- You have enormous IRA accounts that cannot be rolled over, resulting in significant taxes.
- You will be in a significantly lower tax bracket in retirement.
- You are going to need those funds sooner rather than later.
Ultimately, the key to knowing in advance of doing a Roth IRA conversion is this: prepare in advance.
Conclusion
The Backdoor Roth IRA Conversion is one of the last remaining strategies left for high-income earners to build tax-free retirement wealth.
But only if you know the tax rules, do the conversion correctly, and work out your plan in conjunction with your overall financial objectives.
Schedule a Strategy Session with Neil Jesani Advisors and receive expert guidance from advisors who only work with high-income professionals.
