A Roth IRA is a retirement account that can offer tax-free growth and withdrawals in retirement. But the IRS sets income limits that may prevent you from contributing if you make too much money. That’s where the backdoor Roth IRA strategy comes in. This workaround lets you convert a nondeductible contribution in a traditional IRA into a Roth IRA and bypass income restrictions.

Our guide walks you through the backdoor Roth IRA strategy, from understanding eligibility to tax implications. With Gainbridge, you can build a retirement plan that combines tax-free growth with long-term income options. 

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What is a backdoor Roth IRA?

A backdoor Roth IRA isn’t an account. It’s a strategy that lets high earners bypass Roth IRA income limits. It starts with making a nondeductible contribution to a traditional IRA. You then convert the after-tax funds into a Roth IRA. 

Here’s why it can make sense for some investors:

• Tax-free growth: The primary tax advantage of a Roth IRA is that, while you invest after-tax money, your gains grow without being taxed. And when you take qualified distributions from a Roth IRA, you don’t pay income tax. 
• No required minimum distributions (RMDs): Unlike with a traditional IRA, the IRS doesn’t subject Roth IRAs to RMDs at age 73. This means you can enjoy compound growth for longer. 
• Estate planning advantages: Roth IRAs tend to be more tax-friendly to your heirs than traditional IRAs. Beneficiaries typically don’t owe income tax on qualified distributions.

However, there are several drawbacks to consider before moving forward with a backdoor Roth IRA:

• Complexity: Doing a backdoor Roth IRA is not always a straightforward process. You may need help from a tax or financial advisor. 
• Potential tax issues: If you have pre-tax money in other IRAs, you can incur tax consequences. 
• Five-year waiting period: With each Roth conversion, you must wait five years before you can withdraw your money without penalty. 

How to do a backdoor Roth IRA

Here’s a four-step process to complete a backdoor Roth IRA strategy. 

Open or confirm a zero-balance traditional IRA

Start with a traditional IRA with no pre-tax money. This helps avoid complications like triggering the IRS pro rata rule, which blends pre-tax and after-tax money during Roth conversions. If you have pre-tax balances in existing traditional IRAs, the IRS will tax part of your Roth conversion. 

Make a nondeductible IRA contribution

Deposit funds into the IRA, up to the annual limit. For 2025, that’s $7,000 for all IRAs combined, plus an additional $1,000 catch-up contribution if you are 50 or older. You can contribute anytime during the year and until April 15 of the following year. For example, you can make a 2025 contribution all the way until April 15, 2026. 

Convert funds to a Roth IRA

Once your contribution settles (typically in one or two days), you can execute the Roth conversion. Contact your brokerage and convert the entire lump sum, including any small earnings that accrued during settlement. This simplifies tax reporting and moves the money into the Roth as soon as possible. Your brokerage will send you a Form 1099-R, which you will need when you file your taxes. 

File IRS Form 8606 to record the after-tax basis

This step matters most for tax purposes. Form 8606 — Nondeductible IRAs — records your nondeductible contribution to the traditional IRA and confirms the conversion. This ensures the IRS treats it as a non-taxable event. If you skip filing this form, the IRS may treat your entire conversion as taxable.

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Backdoor Roth IRA limits and eligibility

There are no income limits with a backdoor Roth IRA, which is the main advantage of this strategy. However, contribution caps still apply:

• 2024 and 2025 IRA contribution limits: $7,000 / $8,000 if 50 or older. 
• 2025 Roth IRA income phaseout limits: $150,000 to $165,000 for single filers and $236,000 to $246,000 for married filing jointly. 
• Conversion: No income limits. 

It’s important to be aware of the pro rata rule. The IRS considers all of your IRAs — no matter if it’s traditional, self-employed, or simple IRAs — as one account for tax purposes. If you have pre-tax money in any of your IRAs, a portion of your backdoor Roth IRA conversion will be taxable.

For this reason, it’s best to have a zero, pre-tax balance in all of your non-Roth IRAs before doing a backdoor Roth IRA. One way to do this is to roll the pre-tax funds into a 401(k) with your present employer, if permitted. This helps you stay compliant with IRS rules and avoid a surprise tax bill. 

What is a Roth conversion and why it matters

A Roth conversion moves money from a pre-tax account, such as a traditional IRA, to a Roth IRA. The IRS treats the amount you convert as taxable in the year you execute the conversion. For example, if you convert $5,000 from a traditional IRA to a Roth IRA, that $5,000 gets added to your taxable income for the year and you’re liable for ordinary income tax on it. 

This is a powerful part of a long-term retirement plan because you pay taxes on the contributions now, but enjoy tax-free growth and withdrawals in retirement. If you anticipate being in a higher tax bracket in the future, it’s especially advantageous. 

The backdoor Roth IRA is a special type of Roth conversion. With a standard Roth conversion, you move pre-tax funds, which is a taxable event because you’re moving pre-tax funds between a traditional IRA and a Roth IRA. The backdoor strategy uses after-tax money, removing the tax consequence. This is how high earners legally bypass income limits using a Roth IRA. 

Is a backdoor Roth IRA right for you?

A Roth IRA conversion using the backdoor strategy isn’t for everyone. Here are three key factors to consider before making a decision: 

• Income level: If your income exceeds Roth IRA limits, but you want tax-free growth and withdrawals in retirement, the backdoor strategy can make sense. 
• Future tax outlook: If you expect to be in a higher tax bracket in retirement, the backdoor Roth conversion can save you money later. When you withdraw Roth IRA funds in retirement, you don’t pay taxes on qualified distributions. 
• Roth 401(k) availability: If your employer offers a Roth 401(k) option, you may not need a backdoor Roth conversion. A Roth 401(k) can be a more straightforward way to receive the same benefits. 

Plan your retirement with Gainbridge

A backdoor Roth IRA conversion strategy can work for high earners who seek tax-free growth and flexible withdrawals in retirement. But it comes with potential issues, thanks to the paperwork required, timing, and the pro rata rule. 

At Gainbridge, we help simplify complex financial strategies. Our digital-first annuities work well as part of a retirement plan focused on tax-advantaged growth and guaranteed income when you stop working. 

Explore Gainbridge’s annuity solutions designed for long-term income.

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.