Investing and the Backdoor Roth

The whole investing plan on an index card

Decide an allocation between stocks and bonds that you can hold through a 40 percent decline without selling; for most physicians in their 30s that is heavily weighted to stocks. Own the whole market through broad index funds rather than picking companies or managers. Keep costs low. Contribute automatically every month regardless of headlines. Rebalance once a year. That is the plan, and the evidence behind it is as strong as anything in finance.

Put the pieces in the right accounts. Tax-inefficient holdings such as bonds belong in retirement accounts; broad stock index funds are fine anywhere. Once the retirement accounts are full, a plain taxable brokerage account holding the same index funds is the next container, with no contribution limit and no restrictions on when you use it.

Why attendings need the back door

In 2026, direct Roth IRA contributions phase out between $153,000 and $168,000 of income for single filers and $242,000 to $252,000 for joint filers. Most attendings are above those ranges. Congress placed no income limit on converting a traditional IRA to a Roth, and anyone can make a non-deductible traditional IRA contribution. Put the two rules together: contribute $7,500 to a traditional IRA as a non-deductible contribution, convert it to Roth promptly, invest it, and file Form 8606. Done correctly the conversion produces little or no tax.

The pro-rata trap

When you convert, the IRS treats every traditional, SEP, and SIMPLE IRA you own as one pool and taxes the conversion in proportion to the pre-tax share of that pool on December 31. A physician with $92,500 of pre-tax money in an old rollover IRA who converts a $7,500 non-deductible contribution has a pool that is 92.5 percent pre-tax, so about $6,900 of the conversion is taxable. The fix is to roll pre-tax IRA balances into an employer plan that accepts them, before year end. Roth IRA balances and 401(k), 403(b), and 457(b) balances do not count.

This is why lesson three said to use a Solo 401(k) for moonlighting income rather than a SEP-IRA. A SEP-IRA is a traditional IRA for pro-rata purposes and dilutes the back door every year you hold it.

Two more doors, briefly

Each spouse can do a Backdoor Roth, including a spouse with no earned income, based on the working spouse’s income. And some employer plans allow after-tax contributions above the $24,500 deferral limit with in-plan Roth conversion, the so-called mega backdoor; ask your plan administrator whether both features exist before assuming.