Backdoor Roth IRA: when you earn too much

If your income is too high to contribute directly to a Roth IRA, you can still get money in there through a two-step process called a backdoor Roth conversion. It's legal, common, and explicitly allowed by the IRS.

How it works

1. Contribute to a Traditional IRA (no income limit on contributions)
2. Convert that Traditional IRA to a Roth IRA
3. Pay tax on any gains between contribution and conversion (usually pennies if you do it quickly)

The result: money in your Roth IRA, growing tax-free for the rest of your life.

The pro-rata rule trap

If you have any pre-tax money in any Traditional IRA, SEP IRA, or SIMPLE IRA, the IRS makes you convert proportionally — meaning part of your conversion gets taxed. This is the most common backdoor mistake.

The fix: roll any existing pre-tax IRA money into your current employer's 401(k) before doing the backdoor. 401(k) balances don't count toward the pro-rata calculation.

Don't do this without help the first time

The mechanics involve specific IRS forms (Form 8606) and timing rules. A CPA fee for the year you start a backdoor Roth is well worth it. Once you understand the cycle, you can do it yourself in subsequent years.