Backdoor Roth IRA: A Step-by-Step Guide for 2025

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As your income grows, there comes a point when you can no longer contribute directly to a Roth IRA. But fret not—that doesn’t mean Roth contributions are off the table for good. With just a couple of extra steps, the Backdoor Roth strategy will let you reach the same goal.

What Is a Backdoor Roth IRA?

At its core, the Backdoor Roth is simply a three-step process that lets high earners access the benefits of a Roth IRA, even if their income exceeds the limits for direct contribution.

Let’s walk through how it works, when it makes sense, and what you must watch out for.

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Why Roth IRAs Are So Valuable

Roth IRAs are one of the most powerful retirement accounts out there:

• Tax-free growth and qualified withdrawals

• No required minimum distributions (RMDs)

• More flexibility as a wealth transfer tool

  
  

But in 2025, if your income exceeds $165,000 (single) or $246,000 (married filing jointly), you can’t contribute directly to a Roth IRA.

That’s where the Backdoor Roth comes in.

💡Note that these income thresholds are based on your Modified Adjusted Gross Income (MAGI), which is your AGI plus certain deductions (like IRA contributions, student loan interest, excluded U.S. savings bond interest, foreign earned income, and adoption expense exclusions).

How the Backdoor Roth Works

The Backdoor Roth is a simple three-step process:

Step 1:

Make a non-deductible contribution to a Traditional IRA. If your income is too high to deduct a Traditional IRA contribution, you can still contribute. You just won’t get a tax deduction for it. This is called a non-deductible contribution.

In 2025, you can contribute up to $7,000 (or $8,000 if you're 50 or older). Once you contribute, do not invest the funds—leave them in cash before you convert.

Step 2:

Convert that money to a Roth IRA. After the contribution posts, you can roll the money into a Roth IRA through a Roth conversion. Most providers have a form for direct rollovers—be sure to enter the correct "from" and "to" account numbers and specify the conversion amount.

Ideally, complete the conversion soon after the contribution to avoid gains in the Traditional IRA that could create unexpected tax.

Step 3:

Report the transaction on IRS Form 8606. Form 8606 tells the IRS that:

• You made a non-deductible IRA contribution

• You converted it to a Roth IRA

• You already paid taxes on that contribution

  
  

Once the conversion posts, you can invest the funds in your Roth IRA.

When done correctly, this process should result in no tax due—unless you have existing pre-tax IRA balances, which we’ll cover below.

An Example

Let’s say you make $250,000 per year and you're 35 years old and single. You’re locked out of contributing directly to a Roth IRA.

So instead:

• You contribute $7,000 to a Traditional IRA and leave the funds in cash.

• You immediately convert that to a Roth IRA.

  
  

Assuming you have no other IRA balances, the entire conversion is tax-free.

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The Key Caveat: The Pro-Rata Rule

This strategy only works cleanly if you don’t have any other pre-tax IRA money (including Traditional, SEP, or SIMPLE IRAs).

Why? Because the IRS sees ALL your IRAs as one blended account. If you have a mix of pre-tax and post-tax dollars across your IRAs, the pro-rata rule kicks in, and part of your conversion becomes taxable.

💡One way to manage this is to roll your existing pre-tax IRA balance into your 401(k), if your plan allows IRA roll-ins. Note that the pro-rata rule is based on your end-of-year IRA balance.

I’ll write a separate post to expand more on how the pro-rata rule works.

When the Backdoor Roth Makes Sense

The Backdoor Roth IRA is a good fit if:

• You’re a high-income earner

• You’ve maxed out your 401(k) and want to save more for retirement

• You don’t have pre-tax IRA balances (or can move them into a 401(k))

  
  

If that’s you, the Backdoor Roth can be a great way to build up tax-free assets over time.

When to Reconsider

This strategy might not make sense if:

• You have large pre-tax IRA balances and no good way to roll them into a 401(k)

• You may need the money soon (converted funds must stay in a Roth IRA for 5 years to avoid penalties)

• You’re in a lower tax bracket now and might benefit more from pre-tax contributions

  
  

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Bottom Line

The Backdoor Roth IRA is one of the most efficient ways for high earners to get money into a Roth, even if they’re over the income limits. It’s simple in theory, but it comes with technical details, especially around tax treatment and the pro-rata rule.

Know what to look out for, and this strategy can give you more tax-free retirement flexibility for the future.