What Are Roth IRA Conversions And “Back Door” Roth Conversions?

The Purpose of a Roth IRA Conversion:

Roth IRAs are a type of Individual Retirement Account (IRA) that offer tax-free growth and tax-free withdrawals in retirement. Unlike traditional IRAs, in which contributions are tax-deductible but withdrawals in retirement are taxed, Roth IRAs allow you to make contributions with after-tax dollars. Although there is no tax deduction for contributions, the money grows tax-free, and contributions and earnings can be withdrawn tax-free after the age of 59 ½, provided that the account has been open for at least five years. In addition, a Roth IRA can be passed on to beneficiaries with continued tax benefits, helping to preserve more of your assets. Heirs will have to take RMDs, but if the account has been open for at least 5 years, their withdrawals will be tax-free.

A Roth conversion happens when you take money that is already sitting in a traditional IRA, another non-Roth IRA, a SEP, SIMPLE IRA, or an old workplace retirement plan such as a 401(k), 403(b), or 457(b) and transfer it into a Roth IRA. The benefits of doing this are twofold: a lower tax burden in retirement and no required minimum distributions (RMDs) at 73. Traditional IRA or 401(k) and move it into a Roth IRA. However, when you do this, you will owe income tax on the amount you convert. The trade-off is that once the money is in the Roth, it grows tax-free, and you won't pay taxes on it in retirement. Two common strategies are a Roth conversion and a backdoor Roth contribution. While they sound similar, they serve different purposes.

What is the difference between a Roth Conversion and a Backdoor Roth conversion?

1. The Roth conversion: A basic Roth conversion is about moving existing retirement money into a Roth IRA. As noted above, a Roth conversion happens when you take money that is already sitting in a Traditional IRA or 401(k) and move it into a Roth IRA. A good example of an individual who could benefit from a Roth IRA conversion would be the hypothetical case of William. William is a small business owner with a SEP IRA whose income has temporarily decreased but expects his income to increase substantially in a few years. By doing gradual Roth conversions during that time, William would be paying taxes at a lower rate and building a tax-free balance for retirement.
2. The "back door" Roth conversion: A so-called "back door" conversion is about adding new contributions to a Roth IRA when your income is too high to contribute directly. A Roth conversion permits individuals with higher incomes to contribute to a Roth IRA even if they exceed the standard income limits. For 2026, the contribution limit for a Roth IRA is $7,500 for Single Individuals with a Modified Adjusted Gross Income of less than $153,000 (with a complete phase out over $168,000); and Married Individuals Filing Jointly with a Modified Adjusted Gross Income of less than $242,000 (with a complete phase out over $252,000). A good example of an individual who could benefit from a "back door" Roth conversion would be the hypothetical case of Martha. Martha is a successful physician with a high income which she expects to continue. Martha makes too much to contribute directly to a Roth IRA. However, by utilizing the "back door" strategy she can keep her retirement savings growing tax free even though she is over the income limits.

The Process of a Roth Conversion:

The basis steps in performing a Roth conversion are as follows:

1. First, you must have a Roth IRA. If you don't already have one, you can open
   one during the conversion process. Even if your income is too high to make a
   direct contribution, you can still open a Roth IRA.
2. Second, transfer the funds from your existing traditional IRA into your Roth IRA.
3. The major ways to accomplish this are as follows:
   1. Direct rollover (trustee-to trustee transfer): The financial institution moves funds directly from your traditional account to your Roth account.
   2. Indirect rollover: You receive a distribution from your traditional account
      and deposit it into a Roth account within 60 days.
   3. Same trustee transfer: If both accounts are at the same institution, you can instruct them to move funds internally.

There is no limit on the amount you can convert, and multiple conversions in a single year are allowed. N.B. Conversions must be completed by December 31 to count for that tax year.

Tax Implications and Considerations:

The tax considerations in a Roth conversion include:

1. The amount you convert is added to your gross taxable income for the year you make the transfer and is taxed as ordinary income in the year of conversion. This includes both contributions and earnings in the traditional account. You must pay ordinary income taxes on the converted amount, which could temporarily push you into a higher tax bracket. A Roth IRA conversion will increase your Adjusted Gross Income ("AGI").
2. The interactive effect with other tax code provisions which include, but are not limited to:
   1. A possible increase in Medicare premiums: A large conversion could higher Medicare Part B and Part D premiums two years down the line. The Income-Related Monthly Adjustment Amount ("IRMAA") brackets determine the surcharges you pay for Medicare Part B and Part D based on your Federal tax return from the previous two years. For current Medicare rates, see https://www.medicare.gov/publications/11579-medicare-costs.pdf
   2. A possible decrease or loss of the SALT deduction: The One Big Beautiful Bill Act of 2025 ("OBBBA") increased for the State and Local Tax ("SALT") deduction to $40,400 for many filers but phases it out for higher-income tax payers. The phase-out threshold begins at $505,000 of Modified Adjusted Gross Income ("MAGI"). For every dollar above that threshold, the cap drops by 30 cents. For example, in the hypothetical case of Dick and Jane, they file Married Filing Jointly and use Itemized Deductions. They have a MAGI of $400,000 and have paid State and Local taxes of $40,000. If they make a ROTH conversion of $200,000, their MAGI would be $600,000 placing them $95,000 over the phase-out threshold.
      Dick and Jane would lose $28,500 ($95,000 x .30) of their SALT deduction reducing it to $11,500 and increasing taxable income.
   3. A decrease or loss of the QBID deduction: The OBBBA made the Qualified Business Income Deduction ("QBID") permanent at the federal level. However, there is still a threshold at which the QBID is reduced or eliminated based on MAGI. In general, and for example: for 2026 a single filer with a Specified Service Trade or Business ("SSTB") would begin to lose access to the full 20% QBI deduction when his or her MAGI exceed $197,300, with complete phase-out at $247,300. Married couples filing jointly face a phase-out starting at $394,600 and complete elimination at $494,600. For example, consider the hypothetical case of Stanley. Stanley is a single taxpayer, who as owner of an S-Corp, earns $190,000. If Stanley makes a Roth conversion of $60,000, his MAGI is pushed to $250,000 and he completely losses any QBID deduction. In this case, $38,000 ($190,000 x .20 = $38,000).
   4. The Net Investment Income Tax ("NIIT") is a separate 3.8% on investment income (e.g., interest, dividends, capital gains, rental income, and passive business income) for taxpayers over certain MAGI thresholds ($250,000 married filing jointly and $200,000 for single or head of household). A Roth conversion could have the effect of increasing MAGI and generating the NIIT. For example, consider hypothetical case of George. George is a single taxpayer with wage income of $110,000 and $80,000 in net investment income. If George made a Roth conversion of $40,000, he would owe an additional $1,140.00 in NIIT ($110,000 + $80,000 = $190,000; $190,000 + $40,000 = $230,000: $230,000 - $200,000 = $30,000; $30,000 X .038 = $1,140).
3. You must pay the taxes on the conversion using money outside of the retirement account. Thus, you should have cash available to cover the tax bill without dipping into the retirement funds themselves. Using the converted funds themselves to pay the IRS triggers penalties and defeats the purpose of the strategy.
4. You must be prepared to keep any converted in the account for five years. Withdrawing converted funds within five years of the conversion will trigger a 10% penalty.

Are Roth conversions going to be abolished?

Despite rumors, Roth IRA conversions remain legal under current federal law, allowing any taxpayer with a traditional IRA, SEP IRA, or employer plan to convert funds to a Roth IRA by paying ordinary income tax on the pre-tax portion of the transfer.

Although proposals to restrict Roth conversions for high-income taxpayers surfaced in 2021, none became law. The One Big Beautiful Bill Act of 2025 (OBBBA) did not eliminate Roth conversions or backdoor Roth strategies. It actually extended existing provisions and made the Tax Cuts and Jobs Act (TCJA) tax brackets permanent, which may influence the effective tax rate on conversions. Some experts note that the 2025–2028 period is a particularly favorable window for conversions due to low tax brackets and new senior deductions, making it an optimal time to act before possible future tax increases.
The fact that the government benefits from upfront tax revenue when conversions occur, which makes it unlikely that Roth conversions will be eliminated entirely in the near term. However, high-income earners should monitor legislative developments and consider acting within the current favorable window.

Is a Roth Conversion Right for Me?

Every individual's situation is different. Generally, a Roth Conversion

1. May make sense if you expect to be in a higher tax bracket in the future. You pay taxes now at your current, lower rate, and your future withdrawals are 100% tax-free;
2. May make sense if you make too much for a regular Roth contribution but want your savings to grow tax free by making a "back door" conversion:
3. May not make sense if you are near retirement age and need traditional IRA funds for living expenses, as paying taxes on a conversion may not be recouped in time or if you expect to be in a lower tax bracket in retirement making immediate taxation less advantageous;
4. May not make sense if, as the above examples suggest, the effect of the MAGI increase due to a Roth conversation would cause you to lose deductions or pay additional taxes.

Please Note: The above is submitted for educational and informational purposes only and is not intended as financial, investment, legal, or financial advice. It is also not intended to recommend nor not recommend performing a Roth IRA conversion. The examples provided are simply hypothetical and may or may not be applicable to your situation. The decision to make a Roth conversion should be discussed with a financial advisor.