If you make too much money to contribute to a Roth IRA, there's a workaround that thousands of Americans use every year—and it's completely legal.
It's called the backdoor Roth IRA, and despite the name, there's nothing shady about it.
For 2024, if you're single and earn more than $161,000, or married filing jointly above $240,000, you can't contribute directly.
That frustrates high earners who want tax-free growth in retirement.
You contribute to a traditional IRA—which has no income limit—then convert that money to a Roth.
Since you already paid taxes on the contribution (it's after-tax money), you typically owe little or nothing on the conversion.
If you already hold pre-tax money in any traditional IRA, the IRS looks at your total balance when calculating taxes on the conversion.
That means you can't just convert the new after-tax dollars and skip the rest.
Say you have $50,000 in a traditional IRA from old 401(k) rollovers and add $7,000 after-tax.
When you convert, the IRS treats it proportionally—so most of your conversion becomes taxable.
That can turn a clean maneuver into an expensive one.
Roll existing pre-tax IRA money into your employer's 401(k) first, if the plan allows it.
That clears the deck so your backdoor conversion stays mostly tax-free.
Open a traditional IRA, contribute up to the annual limit ($7,000 in 2024, or $8,000 if you're 50 or older), and convert it to a Roth shortly after.
You report both steps on Form 8606 when you file your taxes.
Some people convert right away to minimize growth before conversion.
Others wait, but that can create a small tax bill if the account grows.
Either way, keep records—the IRS wants to see the paper trail.
One more thing to watch: the "step transaction" doctrine.
The IRS hasn't formally blessed backdoor Roth conversions, but it also hasn't challenged them for ordinary investors.
Legislation has floated closing the loophole, so it's worth staying informed.
For high earners with decades until retirement, the math is compelling.
Tax-free withdrawals in retirement, no required minimum distributions, and tax-free growth add up.
Even a modest annual contribution can compound into six figures over 30 years. **Our take:** The backdoor Roth remains one of the few legitimate ways high earners can build tax-free retirement savings.
Final Thoughts
It's not complicated, but the pro-rata rule trips people up—so check your existing IRA balances before you convert, or you might owe more than you expect.