Back Door Roth
Bill is a 51 year old doctor who works in a large hospital group and earns about $400k per year. He is maxing out his 401k at work and has an IRA with $13,000 in it. His employer matches, but only a small amount. He also may get a profit sharing distribution, depending on the year. Can he do a back door roth? If so, how would he do it? What are the mechanics and gotcha’s?
Permalink Submitted by Alan - IRA critic on Wed, 2025-10-08 18:00
His earnings are way to high to qualify for a regular Roth IRA contribution. But if all his IRAs only hold 13k he could make a non deductible IRA contribution 8000 and then convert his IRA, then worth 21k to Roth. He would owe tax on the 13k, but that’s not significant with his high income. Then in 2026 he could make another IRA contribution of 8000 and convert it tax free because he would no longer have pre tax dollars in his IRA.
The 401k does not factor into this, but if he were ever to roll it over to an IRA, any conversions done would be almost all taxable.
So the process is to first make a non deductible IRA contribution and in his case to then convert the entire IRA to Roth.
But if his 401k plan will accept rollovers from IRAs, he could avoid the conversion tax by rolling the 13k pre tax IRA balance into the 401k. He could then convert the 8000 non deductible basis to Roth tax free. If interested, he should check with the 401k administrator if the plan accepts rollovers from IRAs, and if it does he has this option. Of course, it is easier to just convert the entire 21k and pay the tax on the 13k.