If you earn too much to contribute to a Roth IRA directly, there's a legal workaround that many savers use instead.
It's commonly called the backdoor Roth IRA, and it has nothing to do with anything shady.
It's simply a two-step move that lets higher earners get money into a tax-free retirement account.
You put money into a traditional IRA, then convert that money into a Roth IRA.
Because you already paid taxes on the money you contributed, the conversion usually comes with little or no extra tax bill.
The result is the same tax-free growth and tax-free withdrawals that a regular Roth offers.
For 2024, you can only contribute to a Roth IRA directly if your modified adjusted gross income is under $161,000 for single filers or $240,000 for married couples filing jointly.
Above those levels, the front door is closed.
The backdoor route is how people get around that.
A Roth IRA lets your money grow tax-free and come out tax-free in retirement.
That's a big deal if you expect to be in a higher tax bracket later, or if you simply want more tax diversity in your retirement savings.
Once you've maxed out a 401(k), a Roth is often the next best place to put extra money.
The steps are straightforward, but the details trip people up.
First, open a traditional IRA and contribute.
For 2024, the limit is $7,000, or $8,000 if you're 50 or older.
Second, convert that money to a Roth IRA.
Most brokers let you do this online in a few clicks.
Third, report the conversion on your tax return using Form 8606.
Skip that form and you could get a letter from the IRS.
If you already have money sitting in a traditional IRA, the IRS looks at all your traditional IRA balances together when figuring out how much of your conversion is taxable.
Many people avoid this by rolling existing traditional IRA money into a 401(k) first, if their plan allows it.
Some advisors suggest waiting a few days or weeks between the contribution and the conversion so the paperwork is clean.
If you're unsure, a tax professional can walk you through it for a modest fee, which is often cheaper than fixing a mistake later.
Starting in 2024, Roth 401(k) accounts no longer require minimum distributions during the account holder's lifetime, which makes them more attractive for some savers.
That change doesn't affect the backdoor Roth directly, but it's part of a broader shift toward putting more money in tax-free buckets.
None of this is a promise of a bigger refund or guaranteed returns.
Markets go up and down, and your tax situation is your own.
But for high earners who've been told they can't use a Roth, the backdoor method is a legitimate option worth understanding.
The bottom line: if your income blocks you from a direct Roth contribution and you've already maxed out other retirement accounts, the backdoor Roth is worth a look.
Just go in with your eyes open about the pro-rata rule and the paperwork.
Final Thoughts
A little planning now can save you a headache at tax time.