Why a Backdoor Roth IRA May Be the Smartest Move You Can Make

The Problem: Income Limits Block Traditional Retirement Contributions

Traditional IRA Deduction Phase-Outs

The IRS imposes income limits on whether you can deduct contributions to a Traditional IRA, especially if you or your spouse are covered by a workplace retirement plan.

For 2025:

• Single filers: Deduction begins to phase out at $77,000 and is eliminated at $87,000

• Married filing jointly (with workplace coverage): Phase-out starts at $123,000 and ends at $143,000

Once your income exceeds these thresholds, you can still contribute to a Traditional IRA, but you lose the tax deduction, making it a less attractive option.

Roth IRA Income Limits

Roth IRAs have their own income eligibility limits. For 2025:

• Single filers: Eligibility phases out between $146,000 and $161,000

• Married filing jointly: Phase-out range is $230,000 to $240,000

Once your modified adjusted gross income (MAGI) exceeds those limits, you cannot contribute directly to a Roth IRA at all.

The Solution: The Backdoor Roth IRA

The Backdoor Roth IRA strategy is designed to work around these income limitations.

Here’s how it works:

1. Contribute to a non-deductible Traditional IRA (since you don’t qualify for the deduction anyway).

2. Convert that contribution to a Roth IRA, ideally shortly after the deposit so there's minimal gain to be taxed.

This process allows high-income earners to legally fund a Roth IRA even when they're otherwise ineligible.

Contribution vs. Conversion: Know the Difference

It’s important to distinguish between two types of Roth IRA funding: contributions and conversions.

Roth Contributions

• Subject to income limits

• Can be withdrawn at any time, tax- and penalty-free

• Earnings must remain in the account until age 59½ and for at least five years to avoid penalties

Roth Conversions

• No income limit

• Trigger taxes on any pre-tax amounts converted

• Must remain in the Roth IRA for five years, even if you’re over age 59½, to avoid penalties on the converted amount
  (This is known as the five-year rule for conversions)

In other words, you can tap your Roth contributions freely, but converted funds are locked for five years—even if you retire early.

Why It Matters

The Backdoor Roth IRA offers long-term benefits:

• Tax-free growth and withdrawals in retirement

• No required minimum distributions (RMDs), unlike Traditional IRAs

• A powerful tool for legacy and estate planning, especially since Roths can grow tax-free over your lifetime and your heirs’

It’s not for everyone, and the IRS’s pro-rata rule can complicate things if you have other pre-tax IRA balances. But for many high-income earners who are otherwise locked out of Roth benefits, it can be an elegant and legal workaround.

Final Thoughts

If you’re above the income thresholds and looking to grow after-tax money in a tax-free account, the Backdoor Roth IRA is one of the few remaining planning levers available. Done correctly and with awareness of the holding rules, it can become a core part of your long-term retirement strategy.

Disclosures:

The information provided herein is intended solely for general informational purposes and should not be interpreted as personalized investment advice or an individualized recommendation. Investment strategies discussed may not be appropriate for every investor. Each individual should carefully evaluate any strategy in light of their unique financial situation before making investment decisions.

All opinions expressed are subject to change without notice in reaction to shifting market conditions. While data presented may come from third-party sources believed to be reliable, Mietzner Wealth Management cannot guarantee its accuracy, completeness, or reliability.

This content is general in nature and is not intended to provide specific legal, tax, or investment advice. Tax regulations may change, potentially with retroactive effect. For advice tailored to your individual circumstances, consult with qualified professionals such as a CPA, financial planner, or investment advisor before acting on any of the information provided.

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