Backdoor and Mega Backdoor Roth IRA Strategies: How High-Income Earners Can Maximize Tax-Free Retirement Savings
Background:
If you earn too much to contribute directly to a Roth IRA, a Backdoor Roth IRA or Mega Backdoor Roth IRA may be the answer for you. High earners often make too much to contribute directly to a Roth IRA – for 2025, Roth IRA contributions begin to phase out at $146,000 for single filers and $230,000 for married couples filing jointly. Once your income exceeds these thresholds, you can no longer make direct Roth contributions.
But that doesn’t mean you are out of luck. Two advanced strategies – the Backdoor Roth IRA and the Mega Backdoor Roth IRA – allow high-income earners to legally access the powerful tax-free growth and tax-free withdrawals of Roth accounts.
Backdoor Roth IRA:
A Backdoor Roth IRA is a workaround to make Roth contributions when your income is too high. You first make a non-deductible contribution to a Traditional IRA, and then soon after (to avoid taxable growth) convert that contribution to a Roth IRA.
This strategy works best for people who don’t have large existing Traditional IRA balances, due to the pro-rate rule. The pro-rata rule states that if you have other pre-tax IRA balances, your conversion will be partially taxable based on the ratio of deductible (pre-tax) to non-deductible (after-tax) contributions within the Traditional IRA.
Mega Backdoor Roth IRA:
A Mega Backdoor Roth IRA is a strategy that allows you to contribute significantly more than the normal Roth IRA limit by leveraging your 401(k) plan.
If your 401k plan allows for after-tax contributions, you can make after-tax contributions and then convert those after-tax contributions to a Roth 401(k) or roll them into a Roth IRA.
This strategy works best for high earners with 401(k) plans that allow after-tax contributions and Roth conversions and/or in-service rollovers. Check with your HR or plan administrator if your plan supports this.
Earn too much to make a Roth IRA contribution, but still want to take advantage of tax-free growth and tax-free withdrawals? Consult with your financial advisor or tax accountant to see if a Backdoor Roth IRA or Mega Backdoor Roth IRA is a right strategy for you!