Therapists are usually great at helping other people manage stress, trauma, and confusing emotions. But when it comes to retirement tax planning? That’s where even the calmest minds go, “Huh?”
If you’ve ever tried to open a Roth IRA, only to be told you make “too much money,” you’re not alone. The IRS giveth, and the IRS taketh away.
So, how do high-earning therapists (especially those with thriving private practices) get in on that sweet, tax-free retirement growth?
Say hello to the Backdoor Roth IRA for therapists – a strategy that sounds way sketchier than it actually is.
Let’s walk through what it is, how it works, and whether it’s worth the trouble.
Wait… What Is a Backdoor Roth IRA?
The “Backdoor Roth” isn’t a special type of account. It’s more like a sneaky little strategy to get around the IRS’s income limits.
Here’s the problem: Roth IRAs have income limits. If you make more than $146,000 (single) or $230,000 (married filing jointly) in 2024, you can’t contribute directly to a Roth IRA. Sad trombone.
But there’s no income limit on contributing to a Traditional IRA.
And there’s also no income limit on converting a Traditional IRA into a Roth IRA.
See where we’re going?
Step 1:
Contribute to a Traditional IRA (non-deductible).
Step 2:
Convert that Traditional IRA to a Roth IRA.
Ta-da! You now have Roth money, growing tax-free, even though you were “too rich” to do it the normal way. Wealthy therapist loophole unlocked.
Sounds Easy Enough. What’s the Catch?
This is still the IRS, so of course, there’s a catch. Actually, there are two main catches:
1. The Pro Rata Rule (a.k.a. the Math You Don’t Want)
If you already have money in a Traditional IRA, SEP-IRA, or SIMPLE IRA, the IRS makes you mix all those together when you do the conversion. You can’t just convert the new $7,000 you contributed—you have to calculate the tax impact based on the total balance across all your IRAs.
This can lead to a tax bill, even if you just wanted to do a simple backdoor Roth. And no, there’s no skipping the math.
2. Timing and Recordkeeping
You’ll need to make sure your contribution is clearly non-deductible (Form 8606), and that your custodian properly codes the conversion as a rollover—not as a distribution. If that last sentence made your eyes glaze over, it’s okay. Ours did too. That’s why we help clients track this stuff.
Is This Worth It for Therapists?
If you’re a therapist making above the Roth IRA income limits and you don’t have a bunch of pre-tax IRA money floating around, the backdoor Roth can be a great way to stash away some extra tax-free retirement savings each year.
That said, if you already have a big SEP-IRA balance from past years or you hate dealing with IRS forms, it might not be worth the extra headache.
Need Help Deciding?
We can’t legally tell you which investments to buy (that’s for a financial advisor), but we can help you figure out if the backdoor Roth is a smart move for your situation.
Whether you’re just trying to set one up, or you accidentally triggered the Pro Rata Rule and now you’re sweating your tax bill -we’ve seen it all.
Let us help you make it make sense.
TL;DR:
Therapists who make too much to contribute to a Roth IRA directly can use the “Backdoor Roth” strategy by contributing to a Traditional IRA and then converting it to a Roth. Just watch out for the Pro Rata Rule if you already have IRA balances. And please, please don’t forget Form 8606.
