A backdoor Roth IRA can allow high-income earners to fund a Roth IRA even when their income is too high to contribute directly.
For high-income executives, business owners, and physicians, the strategy can be useful, but there are a few important details to understand before moving any money.
By Richard Zangara, Founder & Managing Director, IvyCrest Private Wealth & Partners · LinkedIn
Why This Matters Now
Many of the executives, physicians, and business owners we work with are already doing a good job of saving for retirement: maxing out a 401(k), building taxable investment accounts, and saving consistently. But there is one account they often assume is no longer available to them: the Roth IRA.
That assumption is usually wrong. For 2026, single filers with modified adjusted gross income (MAGI) of $168,000 or more, and joint filers at $252,000 or more, can’t contribute directly to a Roth IRA at all. Below those thresholds, contribution room phases out gradually. If Traditional and Roth IRAs aren’t a familiar distinction, our quick reference on the basics is a good starting point.
The IRS does not impose an income limit on Roth conversions. That distinction between Roth IRA contributions and Roth conversions is what makes the backdoor Roth strategy possible, even for people who earn too much to contribute directly.
For clients who are already maximizing tax-deferred savings and want another source of potentially tax-free retirement income without required minimum distributions during their lifetime, a properly executed backdoor Roth can be a meaningful part of a broader tax-diversification strategy. The process itself is straightforward. Getting it right, especially when you have other IRA money from an old job, is where things become more nuanced.
How a Backdoor Roth IRA Actually Works
The Two-Step Process
- Step 1 — Contribute: Make a nondeductible (after-tax) contribution to a traditional IRA. There’s no income limit on who can contribute to a traditional IRA, only on whether the contribution is tax-deductible.
- Step 2 — Convert: Move that money into a Roth IRA. There is no income limit on Roth conversions.
- A backdoor Roth is not a special type of account. It simply uses two existing rules: you can make a nondeductible contribution to a traditional IRA, and you can convert traditional IRA assets to a Roth IRA regardless of your income.
The Pro-Rata Trap
The strategy is relatively straightforward when you have no other traditional IRA money. The calculation becomes more complicated when you already have pre-tax dollars in a traditional, rollover, SEP, or SIMPLE IRA.
The IRS’s pro-rata rule requires you to treat all of your traditional-type IRAs as one combined pot when calculating how much of any conversion is taxable. You cannot cherry-pick which dollars convert tax-free.
Here’s a simplified illustration: say you make an $8,000 after-tax contribution to a new traditional IRA, but you also have $72,000 of pre-tax money sitting in a rollover IRA from a prior employer’s 401(k). Your total traditional IRA balance is $80,000, of which $72,000 (90%) is pre-tax. If you convert the $8,000, the IRS treats 90% of that conversion, or $7,200, as taxable income, even though you intended to convert only the after-tax portion. Only $800 comes through tax-free.
This is one of the most common reasons a backdoor Roth produces a different tax result than expected. It’s worth reviewing your existing IRA balances before making the contribution.
The example provided is hypothetical and is provided for informational purposes only. It is not intended to represent any specific investment, nor is it indicative of future results.
2026-Specific Considerations
- IRA contribution limit: For 2026, the combined contribution limit for traditional and Roth IRAs is $7,500, or $8,600 for individuals age 50 and older, including the $1,100 catch-up contribution. This is the amount that can generally be contributed through a backdoor Roth strategy in a given year.
- Direct Roth eligibility for 2026: Single filers phase out between $153,000 and $168,000 of MAGI; joint filers phase out between $242,000 and $252,000. Above those upper thresholds, direct contributions aren’t allowed at all, which is the population this strategy is designed to help.
- Step-transaction considerations: The IRS has not issued specific guidance addressing whether a contribution followed immediately by a Roth conversion should be treated as a single transaction under the step-transaction doctrine. The strategy is widely used, but clients should still discuss the tax implications with their tax advisor.
- New Jersey considerations: New Jersey generally does not allow a deduction for traditional IRA contributions. As a result, New Jersey residents who make after-tax IRA contributions may already have state tax basis in those contributions. The state tax treatment of a Roth conversion can differ from the federal calculation, so this should be reviewed separately when evaluating a backdoor Roth.
When a Backdoor Roth May Make Sense
A Backdoor Roth May Be Worth Considering If…
- Your income already puts you above, or close to, the direct Roth contribution limits
- You have little or no pre-tax money in any traditional, rollover, SEP, or SIMPLE IRA, so the pro-rata rule has minimal impact
- You’ve already maximized tax-deferred space in a 401(k) or similar plan and want a source of tax-free retirement income
Consider Other Options If…
- You’re carrying a large pre-tax IRA balance and haven’t yet explored rolling it into a current employer’s 401(k) to clear the pro-rata problem
- You already qualify for direct Roth contributions and don’t need the extra step
- Cash flow this year is better directed toward maxing out a 401(k) match or paying down higher-cost debt before funding an IRA of any kind
IvyCrest Perspective
One of the more common assumptions we hear from high-income clients is simple: “I make too much for a Roth.”
That was the assumption of a client we were working with, a surgeon in her mid-40s who had crossed the income threshold a few years earlier. She had essentially written off the Roth IRA as something that was no longer available to her.
But “I make too much to contribute directly to a Roth” and “I can’t use a Roth” are two very different things.
In her case, most of her retirement savings were already sitting in her current employer’s 401(k), and she didn’t have old rollover, traditional, SEP, or SIMPLE IRA balances sitting elsewhere. That distinction mattered.
It meant she could potentially use a backdoor Roth, making an after-tax contribution to a traditional IRA and then converting those dollars to a Roth IRA. Because she didn’t have other pre-tax IRA money complicating the calculation, the conversion could be completed with little tax cost beyond any investment growth that occurred between the contribution and conversion.
The important lesson, though, isn’t simply that high earners can use a backdoor Roth. Before trying one, look at what’s already sitting in your IRAs.
An old 401(k) rollover can change the calculation considerably. The IRS looks at traditional, rollover, SEP, and SIMPLE IRAs together when applying the pro-rata rule, so you can’t simply choose to convert the after-tax dollars and leave the pre-tax dollars untouched.
That’s why we think the right question isn’t “Do I make too much for a Roth?” It’s “Given my income, retirement accounts, and existing IRA balances, is there still a way to use one?”
For the right client, the answer may be yes. And sometimes the most valuable part of the strategy is simply realizing that the door wasn’t closed in the first place.
Additional Factors Worth Weighing
Clearing Out Pre-Tax IRA Balances First
If a 401(k) or similar employer plan accepts incoming rollovers, moving pre-tax IRA money into that plan before starting a backdoor Roth strategy can eliminate the pro-rata problem entirely, since employer plan balances aren’t counted in the pro-rata calculation. Not every plan allows this, so it’s worth confirming with the plan administrator before assuming the option is available.
The Mega Backdoor Roth — A Different Strategy Worth Knowing About
Business owners and executives with a 401(k) plan that allows both after-tax contributions (above the regular employee deferral limit) and in-service withdrawals or in-plan conversions may be able to move considerably more into Roth space through what’s commonly called a “mega backdoor Roth.” It’s a separate strategy with its own plan-design requirements and isn’t available in every workplace plan, but for the right business owner, it can move far more than the $7,500 IRA limit into tax-free growth each year. See The Mega Backdoor Roth for a fuller breakdown of how it works.
Tax Reporting
- The custodian reports the traditional IRA distribution on Form 1099-R.
- You report the nondeductible contribution and the conversion on IRS Form 8606. This is required every year you do this, even in years the conversion isn’t fully taxable, so the IRS has a record of your after-tax basis.
- Keeping Form 8606 records consistent from year to year is important because the form documents your after-tax basis and helps prevent that basis from being taxed again.
Timing
A Roth conversion is generally taxable in the calendar year in which it occurs, so the timing of the conversion matters. There is no IRS requirement that you wait a specific number of days between making a nondeductible traditional IRA contribution and converting it to a Roth IRA. Investors should coordinate the contribution, conversion, and tax reporting with their advisor and tax professional.
Next Steps
Not sure whether a backdoor Roth makes sense for your situation, or whether an existing rollover IRA could create a tax issue? That’s worth reviewing before you make the contribution.
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Related Reading
- New to Traditional and Roth IRAs? See Traditional IRA vs. Roth IRA: The Basics
- Have a 401(k) plan with more room to give? See The Mega Backdoor Roth
- Sitting on unused 529 college savings? See 529-to-Roth IRA Rollovers
Sources
- Internal Revenue Service, “Roth IRAs.” irs.gov
- Internal Revenue Service, “Retirement Plans FAQs Regarding IRAs.” irs.gov
- Fidelity, “Backdoor Roth IRA: Is It Right for You?”, updated January 2, 2026. fidelity.com
- Charles Schwab, “What Is a Backdoor Roth IRA? Income Limits, Taxes, and Rules,” June 11, 2026. schwab.com
- Vanguard, “Backdoor Roth IRA: What It Is and How to Set It Up.” vanguard.com
This article is for general informational purposes only and does not constitute tax, legal, or individualized investment advice. Consult your tax advisor regarding your specific situation.
Please keep in mind that rolling over your QRP assets to an IRA is just one option. You generally have four options for your QRP distribution:
- Roll assets to an IRA
- Leave assets in your former employer’s QRP, if QRP allows
- Move assets to your new/existing employer’s QRP, if QRP allows
- Take your money out and pay the associated taxes
Each of these options has advantages and disadvantages and the one that is best depends on your individual circumstances. When considering rolling over your assets from a QRP to an IRA, factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when you no longer owe the 10% additional tax for early or pre-59 ½ distributions, treatment of employer stock, when required minimum distributions begin, and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
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