The 4 things doctors need to know about a backdoor Roth conversion

Many high earners assume Roth IRAs are off limits once their income crosses the IRS threshold, but a strategy known as the backdoor Roth offers a legal workaround. The approach is straightforward: an investor makes a nondeductible contribution to a traditional IRA, then converts those funds to a Roth IRA. Because the conversion has no income limit, high-income earners can still build tax-free retirement savings that would otherwise be out of reach.

The appeal is significant. Roth accounts grow tax-free, allow qualified withdrawals without tax in retirement, and are not subject to required minimum distributions during the owner's lifetime. For physicians and other high earners, who often face steep tax bills in their peak earning years, that flexibility can be valuable for long-term planning and for passing assets to heirs.

But the strategy is not without pitfalls. The pro-rata rule can trigger unexpected taxes if the investor holds other pre-tax IRA balances, and careful documentation on IRS Form 8606 is essential to avoid paying tax twice on the same dollars. Recent legislative proposals have also raised questions about whether the strategy will remain available. Understanding how the backdoor Roth works, who benefits most, and where the traps lie is essential before making a move.

In this episode, Bryan Jepson, M.D., CFP, explains what doctors need to understand about this financial maneuver.