Back-Door Roth Conversion-Consider This!

April 13th, 2025 at 1:44 PM

Have you ever wondered how to get more money into a Roth IRA despite income limits, the backdoor Roth IRA conversion strategy may have caught your attention. It’s a smart planning tool for high-income earners—but only when used with care.

First, a quick refresher: Roth IRAs offer two powerful benefits—tax-free withdrawals in retirement (if you meet certain conditions) and no required minimum distributions during your lifetime. These features make Roth IRAs excellent for retirement income planning and for long-term wealth transfer to heirs.

Unfortunately, direct contributions to a Roth IRA are phased out at higher income levels—$236,000 to $246,000 for joint filers and $150,000 to $165,000 for single filers in 2025. That’s where the backdoor Roth comes in.

Here’s how it works: You make a non-deductible contribution to a traditional IRA, then convert that amount into a Roth IRA. If you have no other traditional IRAs, this strategy can be a clean, tax-free move.

However, if you have other traditional IRAs (including a SEP or SIMPLE IRA), the IRS looks at all of them when determining the taxable portion of your conversion. This can result in unexpected taxable income on the conversion. In other words, what appears to be a simple “tax-free” conversion could surprise you with a tax bill if you’re not careful.

Before you make a move, it’s essential to review your entire IRA picture. In some cases, consolidating or converting other IRAs first can help set the stage for more tax-efficient backdoor conversions down the line.

Bottom line: A backdoor Roth IRA conversion can be a powerful tool, but it’s not a one-size-fits-all solution.

Mark S. Fineberg, CPA