How the Backdoor Roth Works

Quick version: you contribute to a traditional IRA (nondeductible, since you’re over the income limit for a deduction), then convert to a Roth IRA. There’s no income limit on conversions. If your traditional IRA balance is all after-tax money and you convert quickly, the taxable income from the conversion is close to zero. The IRS permits this strategy under IRC Section 408A.

The strategy exists because direct Roth IRA contributions phase out at $150,000 for single filers and $236,000 for married couples in 2025. High earners who want Roth access use the backdoor as a workaround. It’s been around for over a decade and, despite periodic congressional discussion about closing it, remains available.

Why It’s Different in Florida

In a state like California or New York, one of the biggest selling points of the backdoor Roth is avoiding state income tax on future withdrawals. California charges up to 13.3% on traditional IRA distributions. New York charges up to 10.9%, plus NYC tacks on another 3.876%.

Florida charges nothing. Zero. Traditional IRA withdrawals, Roth IRA withdrawals, 401(k) distributions, pension income — none of it is subject to state tax. The Florida Constitution (Article VII, Section 5) prohibits a personal income tax entirely.

That doesn’t make the backdoor Roth pointless for Miami residents. It means the analysis is purely a federal question: will your federal tax rate in retirement be higher or lower than it is today? If you expect it to be higher — because of rising rates, loss of deductions, or large required minimum distributions from other accounts — the Roth conversion still makes sense. You’re just not getting the state-level kicker.

When the Backdoor Roth Still Wins in Florida

There are several situations where Miami residents should still do the backdoor Roth every year:

• You’re young and in a lower bracket now than you expect to be later. A 30-year-old earning $200,000 who expects to be earning much more at peak career has decades of tax-free growth ahead. The $7,000 annual contribution compounds for 30+ years with no tax on the back end.
• You have a large pre-tax retirement balance and want to reduce future RMDs. Required minimum distributions start at 73 (soon to be 75 under the SECURE 2.0 Act). If you’ll have $3 million+ in traditional retirement accounts by then, RMDs will push you into higher federal brackets. Roth money doesn’t have RMDs at all.
• Estate planning. Roth IRAs pass to heirs tax-free. Beneficiaries still have to empty the account within 10 years under the SECURE Act, but the distributions aren’t taxable income. For a beneficiary living in a high-tax state, inheriting a Roth IRA instead of a traditional IRA saves them real money.
• You moved from a high-tax state and still have traditional IRA balances. If you built up your traditional IRA while living in New York and paying state tax on contributions, those dollars were pre-tax at both the federal and state level. Converting them now in Florida means you only pay federal tax — the state layer is gone. This is one of the strongest arguments for doing larger Roth conversions (not just the backdoor) after relocating to Florida.

The Pro-Rata Rule Applies Here Too

Florida’s lack of state tax doesn’t exempt you from the pro-rata rule. If you have pre-tax traditional IRA money anywhere, the IRS still calculates the taxable portion of your conversion across all IRA balances.

The solution is the same: roll pre-tax IRA balances into a 401(k) — either your employer’s plan or a Solo 401(k) if you’re self-employed. This zeros out the traditional IRA and lets your backdoor contribution convert cleanly.

Miami has a large population of business owners and self-employed professionals. If you run your own business and have a SEP-IRA, switching to a Solo 401(k) is usually a straightforward process. You get the same contribution limits (actually higher, since Solo 401(k)s allow employee deferrals on top of employer contributions) and you clear the pro-rata path for backdoor Roth contributions.

Mega Backdoor Roth: Worth Exploring

For Florida residents who want to move more than $7,000 per year into Roth, the mega backdoor Roth deserves a look. This involves making after-tax contributions to a 401(k) plan (beyond the $23,500 pre-tax/Roth employee limit in 2025) and then converting those contributions to Roth — either in-plan or via a rollover to a Roth IRA.

The total 401(k) limit for 2025 is $70,000 (including employer contributions). The gap between your pre-tax deferrals plus employer match and that $70,000 ceiling is your mega backdoor Roth capacity. Some employer plans allow this; many don’t. If you have a Solo 401(k), you can build in the provision yourself.

In Florida, the mega backdoor Roth is purely a federal tax play — but it lets you shift $30,000-$40,000+ per year into Roth, which adds up fast.

Sources

• 26 U.S.C. § 408A — Roth IRAs
• IRS — 401(k) Contribution Limits
• IRS — Required Minimum Distributions
• IRS Publication 590-A — Contributions to IRAs
• Florida Dept. of Revenue — Corporate Income Tax (no personal income tax)