How do I do a backdoor Roth IRA if I earn too much for direct contributions?

The backdoor Roth IRA is a legal strategy that allows high-income earners who exceed the Roth IRA income limits to get money into a Roth IRA indirectly. Here's the step-by-step process:

Step 1: Contribute to a Traditional IRA

Make a non-deductible contribution to a Traditional IRA (up to $7,000 for 2024, or $8,000 if age 50+). There are no income limits for making non-deductible Traditional IRA contributions. Do NOT deduct this contribution on your tax return.

Step 2: Convert to Roth IRA

Convert the Traditional IRA balance to a Roth IRA. Most brokerages let you do this online. Some people convert immediately (within days), while others wait briefly — there's no required waiting period.

Step 3: Report on your tax return

File Form 8606 with your tax return to report the non-deductible contribution (Part I) and the conversion (Part II). Since you already paid tax on the contribution (it was non-deductible), you'll only owe tax on any earnings that accrued between contribution and conversion.

The Pro-Rata Rule — CRITICAL WARNING:

If you have ANY pre-tax money in ANY Traditional, SEP, or SIMPLE IRA, the IRS applies the pro-rata rule. This means your conversion will be partly taxable based on the ratio of pre-tax to after-tax money across ALL your Traditional IRAs.

Example: You have $93,000 in a rollover Traditional IRA (all pre-tax) and contribute $7,000 non-deductible. Your total Traditional IRA balance is $100,000. When you convert $7,000, only 7% ($490) is tax-free — the other 93% ($6,510) is taxable. This defeats the purpose.

Solution to the pro-rata rule: Roll your existing pre-tax Traditional IRA money INTO your employer's 401(k) plan (if it accepts rollovers) before doing the backdoor Roth. This removes the pre-tax balance from the pro-rata calculation.

Is the backdoor Roth legal? Yes. Congress has been aware of this strategy for years. The Build Back Better Act attempted to close it in 2021 but the provision was never enacted.