Salary FYI

Backdoor Roth Conversion

Investing

A strategy allowing high-income earners to contribute to a Roth IRA by first making a non-deductible Traditional IRA contribution and then converting it to Roth.

## Backdoor Roth Conversion

The Backdoor Roth is a legal strategy for high earners who exceed the Roth IRA income limit ($161,000 single, $240,000 married filing jointly in 2026). It allows them to benefit from Roth tax-free growth and withdrawals.

### Step-by-Step Process

1. Contribute to a Traditional IRA ($7,000, non-deductible).
2. Wait 1-2 business days (let it settle).
3. Convert the entire Traditional IRA balance to a Roth IRA.
4. File Form 8606 with your tax return.

### The Pro-Rata Rule Trap

If you have existing pre-tax IRA balances, the conversion is taxed proportionally. With $93,000 in a pre-tax Traditional IRA and a $7,000 non-deductible contribution:
- Total IRA balance: $100,000.
- Non-deductible portion: 7%.
- Converting $7,000: 93% ($6,510) is taxable.

**Solution**: Roll existing Traditional IRA balances into your 401(k) before converting.

### Mega Backdoor Roth

Some 401(k) plans allow after-tax contributions beyond the $23,500 employee limit, up to the $69,000 total limit. These after-tax contributions can be converted to Roth (in-plan or via rollover), sheltering up to $45,500 additional in Roth.

This is the most powerful retirement savings strategy available to high-earning tech workers.