Biggest Roth IRA Blunders High-Earners Can Make

High earners can still fund a Roth IRA through the backdoor, but careful planning is essential.

A backdoor Roth IRA can help high earners build tax-free retirement savings, but the details matter. zimmytws/shutterstock

A Roth IRA can be a powerful retirement savings tool. It allows for tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMD)—essentially allowing your account to grow indefinitely in your lifetime.

But there’s a roadblock for high-earners. You can’t contribute to a Roth IRA if you breach certain income limits.

Still, there’s always the backdoor Roth IRA. This is the process of making non-deductible or after-tax contributions to a traditional IRA and then converting those contributions to a new Roth IRA.

Sounds simple enough. But there are easy mistakes that can result in hefty and unexpected tax bills. So let’s explore these.

Ignoring the Pro Rata Rule

You may run into some trouble if you have any pre-tax money in any type of traditional IRA. This includes the following.

• Traditional IRA
• Rollover IRA
• SEP (simplified employee pension) IRA
• SIMPLE (savings incentive match plan for employees) IRA

The IRS views all these pre-tax accounts as one bucket of money.

And chances are you’ve already been saving in your traditional IRA with pre-tax dollars. If so, the pro rata rule kicks in when you go through the backdoor Roth IRA process.

Let’s say this is how your traditional IRA breaks down.

• Pre-tax contributions = $90,000
• After-tax contribution = $10,000
• Total IRA assets = $100,000

Now, here’s how the IRS does the pro rata math.

$90,000 of pre-tax contributions is divided by $100,000 of total IRA assets to get 0.9.

Your $10,000 after-tax conversion is multiplied by 0.9 to get $9,000. That is the amount that will be subject to ordinary income tax.

Essentially, that leaves only $1,000 of the conversion as non-taxable. Doesn’t sound like much of a win anymore.

But there’s a way around it. You can rollover all the pre-tax dollars from your traditional IRA into a 401(k) plan if your company allows it. That leaves your traditional IRA with only after-tax dollars and the entire conversion would be non-taxable.

Forgetting About Form 8606

In order to avoid being taxed twice, you must complete Form 8606 when you file your tax return. This form tracks the conversion or your nondeductible or after-tax contributions and calculates how much of your conversion is taxable under the pro rata rule. You must complete this form even if your entire conversion was non-taxable so the IRS knows the contribution was after-tax.

Letting After-Tax Money Sit

Once you make your after-tax contributions to your traditional IRA, you should immediately convert it to a Roth IRA.

That’s because any earnings generated before the conversion would be subject to taxes.

Ignoring Contribution Limits

In 2026, you can contribute up to $7,500 to a Roth IRA plus an additional $1,100 catch-up contribution if you’re 50 or older.

Ignoring Early Withdraw Rules

If you withdraw converted funds from your Roth IRA before you’re 59.5-years-old and before you’ve held the account for at least five years, you’d generally owe a 10 percent penalty on the whole distribution plus ordinary income tax on any earnings.

After age 59.5, you may withdraw converted funds and avoid the 10 percent penalty. However, you still must have had your Roth IRA for at least five years before you can withdraw earnings tax-free.

The Bottom Line

Income limits can stand as barriers to Roth IRAs for high-income earners. But the backdoor Roth IRA strategy can get you in on these tax-advantaged accounts. The process seems simple enough. But there are some trap doors you don’t want to overlook. So remember points like the pro rata rule, completing Form 8606, and understanding withdrawal rules.

But as this can be a complex and time-consuming task, you also may want to consult a qualified tax professional before proceeding with a backdoor Roth IRA.

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