Roth IRA is one of the few accounts which grows tax free. Withdrawals after 59.5 years of age are also tax free. Your social security is taxed, your pension payments are taxed, but not Roth IRA withdrawals. Its a pretty great account to invest in. However if your Modified Adjusted Gross Income (MAGI) is over 150K filing single or combined MAGI is over 236K(married filing jointly), then you are ineligible to contribute to a Roth IRA. This is where a backdoor Roth conversion comes to the rescue.

Backdoor Roth conversion/contribution is a completely legal strategy you can use to get around the MAGI limits and still invest and grow your Roth IRA tax free. Here is how you can achieve this using Schwab.

Step 1: Ensure you have the right accounts at Schwab

You need to have a Roth IRA and a Traditional IRA at Schwab at a minimum. If you have a Schwab checking account, the process is smoother:

If you do not have any of the above mentioned 3 accounts, you can simply login to your Schwab user and click on open an account and follow the instructions.

Step 2: Timing the backdoor Roth conversion right

If you need to contribute to a Roth IRA for 2025, best is to do these transactions in the same calendar year. This helps in making tax reporting easier. Otherwise if you split the transactions across 2 years then you need to report it differently and that just gets confusing. So help yourself and do these transactions in same year.

Ideally, you should have the funds for conversion ready in Schwab checking account. if you do not, first move it there. This will help you in moving money quickly for backdoor roth conversion. It will also help to avoid any gain in interest that could take your balance above the max limits.

Once you have the money in your Schwab checking account, go to Move Money –> Online transfer. Choose your checking account that has the money as From account. Select your traditional IRA as To account.

As you can see, I currently have 0 in my traditional IRA account. In order to have easier tax reporting, its always better to make sure you do not have any money in any of your traditional IRA account under any broker(from rollovers or prior years). This is to avoid triggering the pro-rata rule that could lead to you paying tax on the backdoor Roth conversion.

This transaction is the first step in backdoor Roth conversion. We are just moving our after-tax money from a checking account to a traditional IRA. If the money came from your Schwab checking account this transfer will happen instantly. However if it came from an external account to Schwab, it will be held for a couple of days for confirmation and you could gain interest on that money. Lets move to next step.

Step 4: Move the money from a Traditional IRA to Roth IRA

This is the actual backdoor Roth conversion transaction. Head over to Move Money–> Online Transfer. Choose Traditional IRA as your from Account. Select your Roth IRA as your To account.

Schwab will recognize the transfer as backdoor Roth conversion and show you the pop up in red above. Click on the link and choose the accounts again. Choose Full as conversion type and click Continue.

In the next page, choose No to withholding any taxes. Click Submit. Voila! your backdoor Roth conversion is now complete.

If you moved the money from your checking account at Schwab, this process can be done on the same day for all transactions. This avoids gaining any interest and making tax reporting cleaner. Good thing about Schwab is that next year you can use the same accounts to move money and do the backdoor Roth conversion again.

Check out my other article if you need help in tax reporting the backdoor Roth conversion in your tax return.

Disclaimer: The content presented here is solely for entertainment and informational purposes; please do not consider it as professional advice or a substitute for consulting a qualified expert in the relevant field. I am not your fiduciary or an investment advisor or tax advisor.