Backdoor Roth IRAs: How High-Income Investors Save for Retirement

Backdoor roth Ira

Converting from a traditional individual retirement account (IRA) to a Roth IRA is possible—even if your taxable income exceeds the limit for a Roth account. This is possible via the backdoor Roth IRA loophole. What does a backdoor Roth IRA conversion mean, how do you do it, and should you?

Quick breakdown: What is a backdoor Roth IRA conversion? Investors contribute to a traditional IRA (which is usually tax-deferred), then rollover those annual contributions to a Roth IRA. This lets high-income earners get past the Roth IRA contribution income limits that the Internal Revenue Service (IRS) sets.

Table of Contents

  1. Upsides and downsides of a backdoor Roth IRA
  2. How to do a backdoor Roth IRA contribution
  3. Aggregation rule and pro-rata rule, explained
  4. Bottom line on backdoor Roth IRA conversions

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Upsides and downsides of a backdoor Roth IRA


Roth IRAs have income caps for after-tax contributions (for the 2022 tax year, the modified adjusted gross income, or MAGI, limit is $144,000 for single filers and $214,000 for married filing jointly).

Many high earners get priced out of Roth accounts, either having to reduce their contribution limit or being unable to contribute at all. Traditional IRAs don’t have these income restrictions, and you can roll over contributions into a Roth IRA account without penalty.


  • Traditional IRA contributions may be nondeductible and Roth conversions while carry no penalty have tax liability.

Roth accounts have tax benefits because they let your investments grow tax free, which helps you build wealth without worrying about income and capital gains taxes down the road. By paying income taxes now, you avoid costlier tax liability when you’re (potentially) in a higher tax bracket closer to retirement age.

You also aren’t required to take required minimum distributions (RMDs) in a Roth account, giving you more control over your retirement plan.

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The five-year rule still applies for a backdoor Roth contribution. If you perform a backdoor Roth conversion each year, you need to wait five years after each contribution to make those distributions.

Roth accounts do not allow for tax deductions in any instances, though certain people qualify to deduct traditional IRA contributions.

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How to do a backdoor Roth IRA contribution

  • Speak with a tax professional or financial advisor. Make sure you fully understand the backdoor Roth strategy before embarking on this journey.
  • Open a traditional IRA and make contributions. You can do this with pre-tax dollars (but be prepared to pay a tax bill).
  • Open a Roth IRA and rollover the contributions. This lets people with higher income bypass restrictions on Roth accounts.
  • Keep your traditional IRA open. You can do more backdoor conversions over the years.

Aggregation rule and pro-rata rule, explained

Aggregation rule: The IRS looks at your retirement accounts as a whole. Taxpayers should make sure they don’t have other pre-tax retirement accounts in addition to a nondeductible traditional IRA so as not to exceed contribution limits.

Pro rata rule: The rule on taxation goes like this: “If your account balance contains both pretax and after-tax money, any distribution will generally include a pro rata share of both.” This means if your distributions consist of 50% post-tax dollars and 50% pre-tax dollars, you’ll be taxed accordingly. You cannot distribute only after-tax dollars, according to the IRS.

Bottom line on backdoor Roth IRA conversions

A backdoor Roth IRA strategy can boost retirement savings for high-income earners. Knowing how a backdoor Roth IRA works is key in building your long-term investing strategy. As a brokerage, Public understands the need for long-term investments, which is why we offer a Long-Term Portfolio feature to help you lock those investments in.

Save money and build wealth by avoiding traditional IRA early withdrawal penalties.

Public can help you save for retirement by structuring your portfolio for the long term.

Build your portfolio

Frequently asked questions

Is the backdoor Roth IRA still available?

A backdoor Roth IRA is legal under U.S. tax code as of 2022. A mega backdoor Roth conversion from a 401(k) to Roth exceeding $38,500 is no longer allowed.

When is the deadline for a backdoor Roth IRA?

The deadline to contribute backdoor Roth IRA funds is December 31 of the current tax year.

Do I pay taxes twice on a backdoor Roth IRA?

No, you’re not double-taxed on a backdoor Roth IRA, but avoid tax traps by confirming you don’t have other accounts with nondeductible contributions outside of your traditional IRA.

What is the difference between a Roth IRA & a backdoor Roth IRA?

Both a Roth IRA and backdoor Roth IRA refer to the same type of retirement savings account, but you contribute to them differently. You can contribute to a Roth IRA directly or rollover funds from a traditional IRA.

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