We Will Make $360k Combined This Year. Can We Use a Backdoor Roth Strategy to Reduce Our Taxes?

Eric Reed

Tue, Jun 3, 2025, 9:46 AM 10 min read

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A backdoor Roth can sometimes be a good idea.

The government puts income limits on who can contribute to a Roth IRA portfolio. In 2025, these limits are set at $165,000 for single filers, and $246,000 for joint filers. If you’re above this cap, you cannot contribute money to a Roth IRA. However, there is no income limit on converting money to a Roth IRA. This has led to a practice called "backdoor Roth conversions." This is where high-income households contribute money to a pre-tax portfolio, then convert that money to a Roth IRA in order to maximize the portfolio's untaxed benefits.

For the right household, at the right time of life, this can save significant money in the long run. For example, take a married couple making $360,000 in combined income. When would a backdoor Roth save them on taxes?

The answer will depend significantly on their stage in life, their current tax situation and several other factors.

A financial advisor can also help you determine if a backdoor Roth strategy could be beneficial for you depending on your individual situation.

There are two ways to fund a Roth IRA.

The first is with contributions. A contribution to an IRA account can only be made using earned income. This means money taken from earnings potentially subject to income taxes. The IRS places strict limits on IRA contributions each year. In 2025, you can contribute up to $7,000 to an IRA (Roth or traditional), with an additional $1,000 in catch-up contributions for those age 50 and older.

Roth IRAs have an additional income restriction called the phase-out. An individual can make full contributions to a Roth IRA if you make less than $150,000. You can make reduced contributions at income levels between $150,000 and $165,000, and you cannot contribute to a Roth IRA if your income is above $165,000. For married couples, this phase out window is between $236,000 and $246,000.

The second way to fund a Roth portfolio is with a conversion. A Roth conversion is when you move money from a pre-tax portfolio, like a traditional IRA or a 401(k), and put it into a Roth IRA. There is no limit on how much money you can convert to a Roth IRA, as long as it comes from a qualifying pre-tax portfolio. Perhaps more importantly, there’s also no income limit on making a Roth conversion.

This has created a strategy called a backdoor Roth. Households that earn too much money to make direct Roth contributions can instead contribute money to a 401(k) or a traditional IRA. Then, they convert that money to a Roth IRA. The upshot is that these households can fund a Roth portfolio despite making more than the program's income limits. In fact, if they use a 401(k) for the backdoor conversion, they can fund a Roth IRA far more generously than direct contributions would allow, given that the 401(k) contribution limit significantly exceeds the IRA contribution limit.