The Backdoor Roth IRA: A Tax Strategy for High Earners

This one's for my high-earning DFW professionals—the doctors in Plano, the tech executives in Richardson, the attorneys in Dallas who make "too much" to contribute to a Roth IRA.

Here's the good news: There's a completely legal workaround called the backdoor Roth IRA. And if you're not using it, you're missing out on tax-free growth for retirement.

Let me break down exactly how it works.

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Why Roth IRAs Matter (Quick Refresher)

A Roth IRA is powerful because:

• Contributions: Made with after-tax dollars
• Growth: Completely tax-free
• Withdrawals: Tax-free in retirement
• No RMDs: Unlike traditional IRAs, you're never forced to withdraw

Over 20-30 years, tax-free growth adds up to serious money. That's why high earners want in.

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The Problem: Income Limits

For 2026, you can't contribute directly to a Roth IRA if your modified AGI exceeds:

• $161,000 (single filers)
• $240,000 (married filing jointly)

If you're a successful professional in DFW—a physician in Plano, a tech exec in Richardson, an attorney in Dallas—you probably blow past these limits without trying. The front door is closed.

That's where the back door comes in.

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How the Backdoor Roth Works

Here's the strategy in three steps:

Step 1: Contribute to a Traditional IRA

There are no income limits for contributing to a traditional IRA. Anyone with earned income can put in up to $7,000 (or $8,000 if you're 50+).

Important: Make this a non-deductible contribution. You won't get a tax deduction, but that's fine—that's not the point.

Step 2: Convert to a Roth IRA

Shortly after (I recommend waiting a few days to a few weeks), convert the traditional IRA to a Roth IRA.

Since you already paid taxes on the contribution (it was non-deductible), there's minimal tax owed on the conversion.

Step 3: Enjoy Tax-Free Growth

Now it's in a Roth. It grows tax-free. You withdraw tax-free in retirement.

That's it. You just got $7,000 into a Roth IRA despite making "too much money."

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The Pro-Rata Rule (Don't Skip This)

Here's where people mess up.

If you have OTHER traditional IRA money—from old 401(k) rollovers, previous contributions, anything—the IRS uses a "pro-rata" rule for your conversion.

Example:

• You have $93,000 in a traditional IRA (old rollover)
• You contribute $7,000 (non-deductible) for the backdoor
• Total traditional IRA balance: $100,000
• Your non-deductible portion: 7%

When you convert $7,000 to Roth, only 7% ($490) is tax-free. The other 93% ($6,510) is taxable.

The fix: If possible, roll your existing traditional IRA into your employer's 401(k) before doing a backdoor Roth. This clears the deck and makes your conversion clean.

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The Mega Backdoor Roth (Even More Powerful)

If $7,000/year isn't enough, there's a bigger version: the mega backdoor Roth.

This uses your employer's 401(k) plan—if it allows after-tax contributions and in-service distributions.

How it works:

1. Max out your regular 401(k) contributions ($23,000 in 2026)
2. Make additional after-tax contributions (up to the total 401(k) limit of $69,000)
3. Convert those after-tax contributions to a Roth

Potential contribution: Up to $46,000 additional into Roth accounts per year.

The catch: Your employer's plan has to allow it. Many don't. Check with HR or your plan administrator.

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Who Should Consider a Backdoor Roth?

This strategy makes sense if:

• Your income exceeds Roth IRA limits
• You've already maxed out your 401(k)
• You have a long time horizon (10+ years to retirement)
• You expect to be in a similar or higher tax bracket in retirement
• You don't have large existing traditional IRA balances (or can roll them to a 401k)

Perfect candidates: High-earning W2 employees in Plano, Richardson, and Dallas who are maxing out retirement accounts and looking for more tax-advantaged options.

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Common Mistakes to Avoid

1. Converting Too Quickly

Some people contribute and convert the same day. While not technically illegal, it raises red flags. Wait at least a few days—a few weeks is safer.

2. Forgetting Form 8606

You MUST file Form 8606 with your tax return to document your non-deductible contribution. Skip this, and you might pay taxes on the same money twice later.

3. Ignoring the Pro-Rata Rule

I see this constantly. Someone does a backdoor Roth without realizing they have a $50,000 traditional IRA from an old job. Then they're surprised by a tax bill.

4. Not Doing It Every Year

The backdoor Roth isn't a one-time thing. Do it every year you're over the income limits. That's $7,000+ growing tax-free, year after year.

5. Investing Too Slowly

Once the money is in your Roth IRA, invest it. Leaving it in a money market fund defeats the purpose of tax-free growth.

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The Step-by-Step Process

Here's exactly what to do:

1. Check your traditional IRA balance — If it's not zero, consider rolling it to your 401(k)
2. Open a traditional IRA (if you don't have one) — Keep it empty except for backdoor contributions
3. Contribute $7,000 (or $8,000 if 50+) as non-deductible
4. Wait a few days to a few weeks
5. Convert to your Roth IRA
6. Invest the funds into your chosen investments
7. File Form 8606 with your tax return
8. Repeat every year

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Is This Legal?

Yes. Completely.

The backdoor Roth has been around for years, and the IRS is fully aware of it. Congress even considered codifying it formally in recent legislation.

It's not a loophole or a hack—it's a legitimate strategy that high earners use to access Roth benefits.

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The Bottom Line

If you're a high earner in DFW and you're not doing a backdoor Roth every year, you're leaving tax-free growth on the table. Full stop.

It takes about 30 minutes to set up the first time and 10 minutes each year after. For decades of tax-free growth, that's a trade I'd make every time.

Not sure if it's right for your situation? The pro-rata rule and mega backdoor options can get tricky—getting it wrong means an unexpected tax bill. Happy to walk through the specifics for your situation.

Let's talk →

— Krystal Le, CPA

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LeCPA helps high-income professionals across Plano, Richardson, Carrollton, Frisco, and Dallas with strategic tax planning.