By: Sentient Wealth Group
You’ve probably heard of a Roth IRA, but have you ever heard of a Backdoor Roth IRA?
It sounds like something that could get you in trouble with the IRS, right? But it’s completely legal, and high earners use it to contribute to Roth IRAs indirectly.
Why is this important? Roth IRAs offer tax-free growth and tax-free withdrawals in retirement, but there are income limits. For singles and heads of household, the income phaseout range is $150,000 to $165,000 or $236,000 to $246,000 for married couples filing jointly in 2025.
Backdoor Roth IRAs help work around that. If you’re ready to get started, here’s the process in three easy-to-follow steps:
First, you contribute to a Traditional IRA. The contribution limit for 2025 is $7,000, or $8,000 if you’re 50 or older.
Secondly, you’ll then convert your Traditional IRA into a Roth IRA. We refer to this as a ‘Roth conversion’ and it’s perfectly within the rules.
Finally, upon completion of the conversion, you’ll own a Roth IRA, even though your income was too high to contribute directly.
You will owe taxes when you convert from a Traditional IRA to a Roth IRA. However, after that, your money will grow tax-free, and there will be no taxes due when you withdraw from it during retirement.
There you have it – the Backdoor Roth IRA strategy. It’s an effective maneuver for those who earn too much to contribute directly to a Roth IRA.
As always, consult with a financial advisor or tax professional when considering a backdoor Roth IRA to understand the rules, tax implications, and suitability for your specific situation.
A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.