Backdoor Roth IRAs: Help Your Kids Keep More of Their Inheritance

The backdoor Roth IRA is typically touted as a workaround for the wealthy to boost the amount of retirement income they can withdraw tax-free. But there’s upside for heirs who inherit the retirement account, too.

What’s often overlooked is that this retirement savings strategy provides the same tax-friendly perks to heirs — making a backdoor Roth IRA a strategic estate planning tool for high earners looking to secure their wealth legacy. That’s especially true for wealthy folks who don’t open an IRA for their own retirement, but rather with their heirs in mind.

“It’s a great estate planning technique because your beneficiaries can also take tax-free withdrawals whenever they take money out of the account after you pass,” said James Ciamacco, senior financial advisor at Wescott Financial Advisory Group.

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What is a backdoor Roth IRA?

A backdoor Roth IRA is a term to describe the strategy of converting nondeductible contributions in a traditional IRA to a Roth IRA.

A Roth IRA, of course, offers a key perk that traditional IRAs do not: tax-free withdrawals.

The catch? There are income limits that preclude folks who earn too much from contributing directly to a Roth IRA via “the front door.” In 2025, for example, you’re not eligible to contribute to a Roth IRA if you are a single filer with modified adjusted gross income (MAGI) of more than $165,000 or are a married couple filing jointly with a MAGI over $246,000.

Enter the backdoor Roth IRA.

This loophole gives wealthy savers access to a Roth IRA and dodges the IRS’s income restrictions. It also enables them to pass on assets in the Roth IRA — and the tax-free growth and tax-free withdrawals these retirement accounts offer — to named beneficiaries. Since Roth IRAs are not subject to required minimum distributions (RMDs), the original account holder can keep the money growing tax-deferred longer, boosting the size of the eventual nest egg an heir will inherit.

How a backdoor Roth IRA works

There are a few more steps to open a backdoor IRA than a standard one.

First, open a traditional IRA and fund it with non-deductible after-tax dollars (not pre-tax dollars). A non-deductible IRA has no income limitations. Next, convert the traditional IRA to a Roth IRA soon after. Since you didn’t get a deduction on the contributions to the traditional IRA, you’ll have zero taxes on the conversion amount, although you are subject to tax on gains. (To prove your initial IRA deposits were made with after-tax dollars, you’ll need to fill out Tax Form 8606.)

Be aware, however, that you may have to pay taxes on a portion of a backdoor Roth conversion if you also have IRAs with contributions made with pre-tax dollars, as the IRS treats all IRAs as one pool of assets. The so-called “pro-rata” rule adds complexity to the calculation, so it’s best to get clarity from a tax professional or financial adviser.

Contributions through the so-called backdoor are subject to the same limits as other IRAs. In 2025, the max is $7,000 for savers younger than 50 and $8,000 for those 50 and older.

How a backdoor Roth IRA benefits heirs

Tax-free growth. If you inherit a Roth IRA, the money grows tax-free, allowing the account balance to potentially grow over time due to the appreciation of the assets held in the Roth IRA.

Tax-free withdrawals. The wealthy retirement saver who does a backdoor Roth IRA is passing on the benefits of their Roth IRA directly to named beneficiaries.

“Are you setting up a retirement account with your loved ones in mind? You might rejoice to find out that your heirs get to inherit your Roth IRA tax-free,” Craig Parker, assistant general counsel at Trust & Will, noted in a blog post.

Let’s say the heir is a daughter in her thirties and thus in her prime earning years. Unlike a traditional IRA withdrawal, which is taxed as regular income and could, as a result, boost income enough to push the daughter into a higher tax bracket, the Roth withdrawal will be tax-free.

Ciamacco says he has had clients in their prime earning years who inherit a large traditional IRA balance and end up bumping up into higher tax brackets and end up paying as much as 32%, 35% or 37% in taxes. “Distributions with accounts funded with tax-deductible contributions can really spike your tax bill,” said Ciamacco. Doing a backdoor Roth IRA eliminates those types of dreaded tax bills, he says.

Tax-free withdrawals are especially powerful given the so-called 10-year rule put into effect by the SECURE Act. This rule requires most non-spouse beneficiaries of inherited retirement accounts to withdraw the entire balance within 10 years of the original owner’s death. So, the tax-free nature of the Roth IRA withdrawal becomes far more valuable to the heir when taking distributions.

Spouses who inherit a Roth IRA can roll it over into a Roth IRA in their own name.

Diversifies tax treatment of retirement portfolio. The more withdrawal options an heir has when it comes to retirement accounts and other investment accounts, the better.

“A Roth IRA can also help you access new options to diversify your taxes,” said Trust & Will’s Parker.

Withdrawals from a traditional IRA or 401(k), for example, are taxed at your regular income rate. Distributions from taxable brokerage accounts are taxed at the lower long-term capital gains rate of 0%, 15% or 20%. In contrast, the Roth IRA allows you to access your money without paying any taxes.

“When it comes to backdoor Roth IRAs, the estate planning piece is one of the main benefits,” said Christian DiRusso, senior financial advisor at Altfest Personal Wealth Management.

Read More

• Qualify for Roth IRA Contributions by Lowering Your Income
• Should You Convert a Traditional IRA to a Roth After 60?
• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Six Changes to IRAs and 401(k)s in 2025