The Regular Backdoor Roth: A Smart Move for High-Income Earners
Last week, we highlighted the mega backdoor Roth strategy for solo business owners. For high-income earners, a regular backdoor Roth strategy can pay significant retirement saving advantages.
The Roth IRA has always been an appealing option with ax-free withdrawals in retirement and no required minimum distributions (RMDs). But there’s a catch. If your income is too high, the IRS closes the front door to direct Roth contributions. For 2025, Roth IRA eligibility phases out at incomes of $236,000 to $246,000 for joint filers and $150,000 to $165,000 for single filers.
Fortunately, there’s still a way in—through the backdoor.
What Is a Backdoor Roth IRA?
The backdoor Roth IRA is a legal workaround for high-income individuals to fund a Roth IRA. It involves two key steps:
Make a non-deductible contribution to a traditional IRA.
Convert that contribution to a Roth IRA.
If you don’t have any other traditional IRAs (including SEP or SIMPLE IRAs), this process can be relatively straightforward—and potentially tax-free.
Why Roth IRAs Are So Valuable
Before we go further, let’s recap why Roth IRAs are so powerful:
Tax-Free Growth & Withdrawals: If you follow the rules, your money grows tax-free and comes out tax-free in retirement.
No Required Minimum Distributions: Unlike traditional IRAs, Roths don’t force withdrawals during your lifetime—making them excellent for long-term planning and wealth transfer.
The Catch: The Pro Rata Rule
Here’s where things can get tricky. If you have other traditional IRAs, the IRS doesn’t let you cherry-pick which dollars get converted. Instead, it uses the pro rata rule—which takes into account all your traditional IRA assets when calculating the taxable portion of your conversion.
This means what you thought was a “clean” tax-free backdoor move could end up generating a surprise tax bill.
How to Plan Smartly
Before making a backdoor Roth move, take a step back and look at your full IRA landscape. Strategies like consolidating or converting other IRAs ahead of time can help create a more tax-efficient pathway for future backdoor conversions.
A backdoor Roth IRA can be a brilliant tool for building long-term, tax-free retirement wealth—but it’s not a one-size-fits-all solution. The key is to plan intentionally and understand the tax implications before taking action.
If you’re considering a backdoor Roth strategy, connect with our team at Illumination Wealth. We’ll help you navigate the rules, avoid common pitfalls, and make informed moves for your financial future. Contact us today to get started.