🪴 Tax & Life Series
💚 The Backdoor Roth IRA — How High-Income Earners Can Legally Go Roth in 2025
Think you earn too much to contribute to a Roth IRA? Not necessarily.
Thanks to a smart little move called the Backdoor Roth IRA, even high-income taxpayers can enjoy tax-free growth and tax-free retirement withdrawals.
Let’s unpack how this perfectly legal strategy works — step by step — and how Form 8606 makes it possible.
1️⃣ Why You Might Not Qualify for a Roth IRA
Roth IRAs come with strict Modified Adjusted Gross Income (MAGI) limits.
If your income is above the threshold, you’re locked out of making direct contributions.
| Filing Status | 2025 Roth IRA Income Phaseout |
|---|---|
| Single | $146,000 – $161,000 |
| Married Filing Jointly | $230,000 – $240,000 |
So if you’re a physician, consultant, or business owner earning above those levels, you can’t contribute directly to a Roth IRA.
But — and this is key — the IRS doesn’t forbid you from converting money into one.
That’s where the Backdoor Roth comes in.
2️⃣ What Exactly Is a Backdoor Roth?
A Backdoor Roth IRA isn’t a special type of account — it’s a process.
You first contribute after-tax money to a Traditional IRA, then convert it to a Roth IRA.
Because you’ve already paid tax on the contribution, you owe little or no additional tax when you move it over.
You can’t walk through the “front door” into a Roth IRA because of income limits —
but you can enter through the backdoor, and it’s completely legal under IRS rules.
3️⃣ How Form 8606 Protects You
Form 8606 is the IRS’s way of tracking your after-tax (nondeductible) IRA money.
When you file it, you’re officially telling the IRS:
“This part of my IRA was already taxed — don’t tax it again.”
– The year you make a nondeductible IRA contribution.
– The year you convert to a Roth IRA.
Without it, you could be taxed twice — once when you contribute and again when you withdraw.
4️⃣ Step-by-Step: The Backdoor Roth Process
- Open a Traditional IRA — Fund it with after-tax money (no deduction).
- File Form 8606 — Report your contribution as “nondeductible.”
- Convert to a Roth IRA — Transfer the funds soon after to avoid any taxable gains.
- Track your basis — Keep records for future tax years and conversions.
Sarah, a high-income attorney in New York, earns $240,000 in 2025 — too much for a direct Roth.
She contributes $7,000 of after-tax money to a Traditional IRA and files Form 8606.
A few days later, she converts it to a Roth IRA.
✅ No tax on the conversion since there was no gain yet — and now her money grows tax-free forever.
5️⃣ Example: How the Taxes Actually Work
Let’s see what happens when the account has grown before conversion.
John contributed $6,500 after tax but waited months before converting.
His account grew to $7,000.
He owes income tax on the $500 gain only — not the original contribution.
Form 8606 ensures the IRS recognizes that distinction.
6️⃣ Key Warnings and Pro Tips
- Form 8606 is mandatory — skip it and the IRS may treat the entire conversion as taxable.
- Watch the pro-rata rule: if you have other pre-tax IRA balances, the IRS mixes them all together for tax purposes.
- Timing matters: convert soon after contributing to avoid taxable growth.
- Get professional help: if you already have multiple IRA accounts, the math can get tricky.
🔗 Related Posts:
– Pay Medical Bills Tax-Free — The 2025 HSA & MSA Smart Saver Guide
– Divorce & Taxes in 2025: What You Need to Know Before You Sign Anything
📖 External Reference:
IRS Form 8606 — Nondeductible IRAs (Official Page)
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