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Written by: Amy Shepard
What Is a Roth IRA—and Why It Matters for Retirement
Roth IRAs offer a powerful advantage for retirement planning: tax-free growth and tax-free withdrawals in retirement. Unlike traditional retirement accounts where contributions are tax-deductible but withdrawals are taxed, Roth IRAs take the opposite approach. You pay taxes on the money today, then withdraw it tax-free later—a strategy that can significantly improve long-term outcomes.
Roth IRA Contribution Limits for High-Income Earners
Here’s the catch: not everyone is eligible to contribute directly to a Roth IRA. For 2025, if you’re a single filer earning over $150,000 or married filing jointly with a modified adjusted gross income (MAGI) over $236,000, you’re phased out of making direct contributions.
That’s where the backdoor Roth IRA comes in—a smart workaround for high earners who want Roth benefits but are locked out due to income restrictions.
How the Backdoor Roth IRA Works (Step-by-Step)
The backdoor Roth IRA isn’t a special type of account—it’s a strategy that uses a two-step process:
- Contribute to a traditional IRA (non-deductible if you’re over the income threshold).
- Convert that IRA to a Roth IRA.
That’s it. This simple maneuver allows high-income earners to legally move money into a Roth IRA despite income limits.
Beware the Tax Trap: Understanding the Pro-Rata Rule
If you don’t already have traditional IRA assets, this strategy is clean and tax-free—you’re just converting after-tax dollars. But if you do have other IRA balances (including SEP or SIMPLE IRAs), the IRS views all of your IRAs as one combined pot. This triggers the pro-rata rule, which can lead to unexpected taxes on the conversion.
Both forms must be filed to properly execute the back-door Roth strategy.
Avoiding Common Mistakes and IRS Reporting Issues
The mechanics are easy—but paperwork matters. Here are two key tax forms you must file:
- Form 8606: This tells the IRS your IRA contribution wasn’t tax-deductible.
- Form 1099-R: This is issued by your financial institution and reports the Roth conversion.
Failing to file one or both can result in double taxation. It’s a common error and a good reason to involve a financial planner or tax professional.
Easier Alternatives: Roth 401(k)s May Be a Better Fit
If the backdoor Roth feels overly complex, you might not need it. Many employer-sponsored retirement plans now offer Roth 401(k) options—which have no income limits and allow much higher contribution amounts.
For 2025, individuals under 50 can contribute up to $23,500 to a Roth 401(k), compared to just $7,000 for a Roth IRA. Plus, Roth 401(k)s are easier to manage through payroll deductions.
If your employer offers one, the Roth 401(k) may provide the tax benefits you’re seeking—without the hassle of conversions or IRS forms.
Final Thoughts: Should You Use the Backdoor Roth IRA?
The backdoor Roth IRA is an excellent tool—but it’s not for everyone. It works best for high-income earners with no existing IRA balances and a desire to increase tax-free retirement savings.
“Strategies like this are rarely one-size-fits-all,” says Amy Shepard, CFP®, RMA®, and Partner at Sensible Money. “Make sure you consult a financial planner or CPA before implementing anything—especially when taxes are involved.”
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