What is a Backdoor Roth IRA and who needs it?

The IRS sets strict annual income phase-out limits for direct Roth IRA contributions (for 2026, single filers earning over ~$165,000 cannot contribute directly). A 'Backdoor Roth IRA' is an IRS-sanctioned tax strategy that allows high earners to bypass these income limits: (1) Make a non-deductible contribution to a traditional IRA; and (2) Immediately convert that traditional IRA balance into a Roth IRA. Warning: If you have existing pre-tax money in ANY traditional, SEP, or SIMPLE IRAs, the IRS 'Pro-Rata Rule' (IRC § 408(d)(2)) applies, taxing a proportional share of the conversion. To avoid pro-rata taxes, rollover pre-tax IRA balances into an active employer 401(k) before executing the backdoor conversion.