Income too high for a Roth? The backdoor is open. Here's exactly how it works – and the one mistake that makes it taxable.
The Roth IRA is one of the best accounts in the tax code. You contribute after-tax dollars, the money grows tax-free, and every dollar you withdraw in retirement – principal and gains – is yours to keep. No required minimum distributions. No tax bill in retirement. No state tax in California on the way out.
There is just one problem. If you earn above a certain threshold, the IRS says you cannot contribute directly. In 2026, that phase-out starts at $150,000 for single filers and $236,000 for married couples. Most STQ clients cleared that number before lunch on January 2nd.
The backdoor Roth is the workaround. It is completely legal, explicitly acknowledged by Congress, and surprisingly simple.
Step one: contribute to a traditional IRA. There is no income limit on contributions to a traditional IRA – only on the deductibility of those contributions. At your income level, the contribution is non-deductible. You put in after-tax dollars and get no deduction. That is fine.
Step two: convert the traditional IRA to a Roth. You can convert any traditional IRA to a Roth regardless of your income. Because you already paid tax on the contribution, the conversion is tax-free. The money is now in a Roth, growing permanently tax-free, with no income limit attached.
The IRS closed the front door. Congress left the back one open. It has been open for fifteen years.
The contribution limit in 2026 is $7,000 per person ($8,000 if you are 50 or older). Not life-changing on its own. But done every year for twenty years, with tax-free compounding the entire time, it adds up to a meaningful pool of permanently tax-free wealth.
The pro-rata rule. If you have other pre-tax money sitting in a traditional IRA – from old rollovers, deductible contributions, or a SEP IRA – the IRS treats all of your IRA assets as a single pool when you convert. You cannot cherry-pick which dollars get converted.
Say you have $100,000 in a pre-tax rollover IRA and you contribute $7,000 in after-tax dollars. Your total IRA balance is $107,000, of which roughly 6.5% is after-tax. When you convert the $7,000, only 6.5% of it is tax-free. The rest is taxable income. The backdoor just became a taxable event.
The fix: roll your pre-tax IRA money into your current employer's 401(k) before doing the backdoor conversion. Many 401(k) plans accept rollovers. If yours does, the pre-tax balance disappears from the IRA calculation, the pro-rata problem goes away, and the conversion is clean.
Yes – every year, without exception, for every high-income household. The Roth is the only account that is completely immune to future tax rate increases. You do not know what the top rate will be in twenty years. The Roth does not care. Every dollar in there is already settled with the IRS.
At STQ, the backdoor Roth is on the checklist for every client, every year. It takes thirty minutes to execute and fifteen seconds to explain why it matters.
If you have not done your backdoor Roth this year, there is still time. Let's make sure you're not leaving tax-free growth on the table.
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