What Are the Backdoor Roth IRA Limits?

The “backdoor” Roth IRA is a strategy used by high-income earners whose income exceeds the direct contribution thresholds to fund a Roth IRA. This method involves making a non-deductible contribution to a Traditional IRA and subsequently converting those funds into a Roth IRA. Because the initial contribution is made with after-tax money, the conversion itself has minimal to no immediate tax consequences, provided it is executed correctly.

This process bypasses the income restrictions that would otherwise prevent these contributions. Understanding the specific mechanics, limits, and potential tax implications is important for anyone considering this approach to retirement savings.

Roth IRA Income Contribution Limits

The primary reason for using the backdoor Roth IRA strategy is the income limitations on direct contributions to a Roth IRA. The Internal Revenue Service (IRS) sets Modified Adjusted Gross Income (MAGI) phase-out ranges that determine eligibility. If your income falls within a specific range, you can only make a reduced contribution; if it exceeds the upper threshold, you cannot contribute directly. These limits are indexed for inflation and can change annually.

For 2025, the ability to contribute to a Roth IRA begins to phase out for single filers and heads of household with a MAGI between $150,000 and $165,000. For those who are married filing jointly, the phase-out range is between $236,000 and $246,000. Individuals married filing separately have a much lower phase-out range of $0 to $10,000.

Falling within these ranges means your maximum contribution is prorated, while earning above the upper limit prohibits any direct contribution. For example, a single filer with a MAGI of $165,000 or more in 2025 is ineligible to contribute directly, making the backdoor strategy a relevant option.

Annual IRA Contribution Limits

Regardless of whether you contribute directly or through the backdoor method, the total amount you can put into all of your IRAs—Traditional and Roth combined—is subject to an annual limit. For 2025, the maximum contribution you can make is $7,000. This limit applies to the total contributions across all IRA accounts you own, not to each individual account.

The IRS also provides a catch-up provision for individuals nearing retirement age. If you are age 50 or older by the end of the tax year, you are permitted to contribute an additional $1,000. This brings the total potential contribution for this age group to $8,000 for 2025.

The deadline for making these contributions is the federal tax filing deadline of the following year, typically April 15th. This means a contribution for the 2024 tax year can be made up until mid-April of 2025.

The Pro-Rata Rule and Its Impact

A significant complication affecting the backdoor Roth IRA strategy is the pro-rata rule. This IRS regulation prevents individuals from selectively converting only their non-deductible, after-tax contributions if they also hold pre-tax funds in other IRAs. The rule mandates that any Roth conversion is treated as a proportional distribution of all your aggregated IRA assets, including Traditional, SEP, and SIMPLE IRAs. The total value of these accounts is assessed as of December 31 of the year the conversion takes place.

For example, imagine an individual has an existing SEP IRA with a $93,000 pre-tax balance. To execute a backdoor Roth, they make a new $7,000 non-deductible contribution to a separate Traditional IRA. Their total IRA balance is now $100,000, comprising $93,000 in pre-tax money and $7,000 in after-tax money.

If this individual then attempts to convert only the $7,000 from the Traditional IRA to a Roth IRA, the pro-rata rule applies. The IRS views this conversion as a distribution from the entire $100,000 pool. The calculation determines that 93% of the total IRA assets are pre-tax ($93,000 / $100,000), while only 7% are after-tax ($7,000 / $100,000).

Consequently, when the $7,000 is converted, 93% of that amount, or $6,510, is considered a taxable distribution of pre-tax funds. This amount is added to the individual’s ordinary income for the year. Only 7% of the conversion, or $490, is treated as a tax-free return of the non-deductible contribution. This outcome makes the strategy most effective for individuals who have no existing pre-tax balances in any Traditional, SEP, or SIMPLE IRAs.

Executing the Backdoor Roth IRA Contribution

Successfully completing a backdoor Roth IRA requires a precise sequence of actions. The first action is to fund a Traditional IRA with a non-deductible contribution. This involves opening a Traditional IRA account if you do not already have one and depositing funds up to the annual contribution limit. It is important to designate this contribution as non-deductible.

Once the Traditional IRA is funded, the next step is to convert the assets to a Roth IRA. You will need to contact the financial institution holding your IRA and instruct them to process a Roth conversion. It is advisable to perform the conversion shortly after making the contribution, as allowing the funds to remain in the Traditional IRA could result in investment earnings that would be taxable upon conversion.

The final step is to properly report the transaction to the IRS when you file your annual tax return using IRS Form 8606, Nondeductible IRAs. This form is used to report the initial non-deductible contribution to the Traditional IRA, establishing your after-tax basis. The form is also used to calculate the taxable portion, if any, of the Roth conversion, applying the pro-rata rule if you have other pre-tax IRA assets.