If you earn too much to contribute to a Roth IRA, there's a two-step maneuver that lets you get money into one anyway.
It's called the backdoor Roth IRA, and it's been quietly legal for years despite repeated attempts in Washington to kill it.
For 2024, Roth IRA contributions phase out completely once your modified adjusted gross income hits $161,000 for single filers or $240,000 for married couples filing jointly.
Above those thresholds, you can't put a dime directly into a Roth.
Anyone with earned income can contribute to a traditional IRA, and there's no income limit on that.
Then you convert that traditional IRA to a Roth.
Since you already paid taxes on the money, the conversion triggers little or no additional tax.
Open a traditional IRA, deposit up to $7,000 for 2024 (or $8,000 if you're 50 or older), and convert it to a Roth as soon as the money settles.
Report both steps on Form 8606 when you file your taxes.
The catch that trips people up is the pro-rata rule.
If you already hold pre-tax money in a traditional IRA, SEP IRA, or SIMPLE IRA, the IRS looks at all your IRA balances together when calculating how much of your conversion is taxable.
Someone with a $50,000 traditional IRA balance and a $7,000 backdoor contribution would owe tax on roughly 88% of the conversion.
That surprises a lot of people who assume each account is treated separately.
The workaround for high earners with existing pre-tax IRAs is to roll that money into a 401(k) first, assuming your employer's plan accepts rollovers.
Once the pre-tax balance is out of your IRA accounts, the backdoor conversion becomes nearly tax-free.
One more thing worth knowing: the IRS treats conversions as happening on a calendar-year basis, but the pro-rata calculation uses your year-end IRA balance.
So converting in January doesn't dodge the rule if you still hold pre-tax IRA money on December 31.
Congress has flirted with banning backdoor Roths more than once, most notably in proposed legislation in 2021 and 2022.
None of those provisions became law, but the attention is a reminder that this strategy lives at the mercy of future legislation.
For now, it remains one of the few legitimate ways high earners can build tax-free retirement income.
The paperwork is minimal, the deadline is the tax filing deadline, and the math works for most people who clear up their pre-tax IRA balances first.
Our take: the backdoor Roth isn't glamorous, and it won't make anyone rich overnight.
But for households that have maxed out their 401(k) and still want more tax-advantaged space, it's one of the better deals left in the tax code — at least until lawmakers decide otherwise.
Final Thoughts
Talk to a tax professional before converting, since the pro-rata math can turn a clean maneuver into a surprise bill.