Why Physicians Should Use a Nondeductible IRA

If you’re a physician, you’ve probably experienced this uniquely modern form of annoyance:
you finally have enough income to save aggressively… and the tax code responds by saying,
“Congrats! You make too much to use the simple version.”

That’s where the nondeductible IRA walks in like the side character who ends up stealing the show.
On its own, a nondeductible traditional IRA can feel a bit “why bother?”but used correctly, it can be the
gateway to one of the most valuable moves available to high earners: the Backdoor Roth IRA.

In this guide, we’ll break down what a nondeductible IRA is, why it matters specifically for physicians,
how it helps you build tax-free retirement money even when your income slams the door on direct Roth contributions,
and what mistakes to avoid so you don’t accidentally donate extra dollars to the IRS out of pure confusion.
(The IRS already gets enough donations.)

First, What Is a Nondeductible IRA?

A nondeductible IRA is simply a traditional IRA contribution you do not deduct on your tax return.
You contribute after-tax dollars, meaning you already paid income tax on the money. The contribution creates
“basis” in your IRAyour after-tax investment that shouldn’t be taxed again later.

Why would anyone make an after-tax traditional IRA contribution?

For many high-income physicians, the answer is: because it’s the only IRA contribution still availableand
because it can be converted into a Roth IRA.

Why Physicians, Specifically, Should Care

Physicians often land in a perfect storm:
high income, employer retirement plan access, and a busy schedule that makes “reading IRS publications for fun”
an unpopular hobby. The result is that many docs miss the IRA strategy that can quietly add tens (or hundreds)
of thousands of tax-free dollars over a career.

1) Many physicians can’t contribute directly to a Roth IRA

Roth IRAs have income limits. Once your modified adjusted gross income (MAGI) crosses certain thresholds,
your allowed contribution phases down and eventually disappears.

For example, the Roth IRA contribution phaseout ranges for 2026 are roughly:
$153,000–$168,000 (single/head of household) and $242,000–$252,000 (married filing jointly).
If you’re an attending physician, you may blow past those numbers before you’ve even paid for your first “adult” sofa.

2) Many physicians also can’t deduct a traditional IRA contribution

If you’re covered by a workplace retirement plan (like a 401(k), 403(b), or 457(b)), your ability to deduct
a traditional IRA contribution phases out at relatively modest income levels compared to typical physician earnings.
Translation: you can still contribute, but you can’t deductso it becomes a nondeductible IRA contribution.

3) The nondeductible IRA is the on-ramp to the Backdoor Roth

The most common reason high-income physicians use a nondeductible IRA is to execute a
Backdoor Roth IRA: contribute after-tax dollars to a traditional IRA, then convert those dollars to a Roth IRA.
Done properly, most (or sometimes all) of the conversion can be non-taxable because you already paid tax on the contribution.

The Physician’s Big Win: Accessing Roth Space (Even When the Front Door Is Locked)

Roth accounts are attractive because qualified withdrawals in retirement can be tax-free.
For physicians who expect high lifetime earningsand possibly high retirement incometax-free dollars can be
an enormous planning advantage.

Why Roth money is especially valuable for physicians

• Tax diversification: Having a mix of pre-tax (traditional) and after-tax (Roth) assets gives you flexibility
  in retirement when choosing what to withdraw and how to manage your taxable income.
• Future tax-rate uncertainty: No one knows where tax brackets will be in 10, 20, or 30 years. Roth money
  is a hedge against higher future rates.
• RMD management: Traditional retirement accounts can create required minimum distributions (RMDs) later,
  forcing taxable income whether you need it or not. Roth IRAs generally avoid RMDs during the original owner’s lifetime.
• Legacy planning: Leaving Roth assets can be simpler for heirs compared with leaving them a giant taxable
  time bomb of forced distributions.

How the Backdoor Roth Works (Without the Confusing Mythology)

Here’s the clean, practical version. Think of it as a two-step:

1. Step 1: Make a nondeductible contribution to a traditional IRA.
2. Step 2: Convert that amount to a Roth IRA (a Roth conversion).

That’s it. No secret handshake. No offshore accounts. No carrier pigeons. Just a contribution and a conversion.

Contribution limits you should know

IRA contribution limits change over time. For example:
in 2025 the IRA limit is $7,000 (or $8,000 if age 50+),
and for 2026 it increases to $7,500 (or $8,600 if age 50+).
(Always confirm the limit for the tax year you’re contributing for.)

The Two “Gotchas” That Trip Up Physicians: Pro-Rata Rule and Form 8606

The Backdoor Roth is simple conceptually, but it comes with two rules that physicians must respect:
the pro-rata rule and Form 8606. Ignore either and your “easy” backdoor can become an expensive surprise.

Gotcha #1: The pro-rata rule (a.k.a. “Your other IRAs count, too”)

The IRS generally treats all of your traditional, rollover, SEP, and SIMPLE IRAs as one combined bucket for tax purposes
when you do a conversion. You can’t cherry-pick only the after-tax dollars to convert.
Instead, each conversion is considered a proportionate mix of pre-tax and after-tax money.

Why this matters: If you have a large pre-tax IRA balance (like an old rollover IRA from residency/fellowship,
or a SEP-IRA from moonlighting), your Backdoor Roth conversion may become mostly taxable.

Quick example (with physician-flavored realism)

Dr. Nguyen has a $120,000 rollover IRA from a prior job (pre-tax money). She contributes $7,500 nondeductible to a traditional IRA
and tries to convert $7,500 to Roth. Total IRA bucket is now $127,500.
Only about 5.9% of the bucket is after-tax basis ($7,500 / $127,500).
That means roughly 94.1% of her conversion is taxable incomedespite converting “the after-tax contribution.”

How physicians commonly avoid pro-rata problems

• Roll pre-tax IRA money into an employer plan (if your 401(k)/403(b) accepts rollovers), leaving only after-tax basis in the IRA.
• Convert all IRA money (not always idealcould create a large tax bill).
• Decide the Backdoor Roth isn’t worth it right now if you can’t clean up the IRA bucket efficiently.

Important nuance: the “snapshot” that matters is typically your IRA balances on December 31 of the year you do the conversion.
That’s why physicians often plan IRA cleanup before year-end.

Gotcha #2: Form 8606 (your “don’t tax me twice” paperwork)

Form 8606 is how you report nondeductible IRA contributions, track your basis, and report Roth conversions.
If you make nondeductible contributions and don’t properly file/report them, you risk getting taxed twice:
once when you earn the money, and again when you withdraw it later.

In other words, Form 8606 is your receipt. Don’t lose it.

So… Should a Physician Use a Nondeductible IRA If They Don’t Convert It?

Here’s the honest answer: usually, noor at least, not as your first choice.

A nondeductible traditional IRA (without conversion) can be less attractive because:
earnings are ultimately taxed as ordinary income when distributed, rather than the more favorable long-term capital gains rates
you might get in a taxable brokerage account.

That’s why you’ll often hear a physician-focused rule of thumb:
Don’t contribute to a nondeductible IRA unless you have a solid plan to turn it into a Roth.
The “plan” part is what makes it powerful.

Physician-Friendly Reasons This Strategy Is Worth the Effort

1) It’s repeatable every year

Physicians who do this annually turn a relatively small yearly contribution into a meaningful Roth balance over timeespecially if done early
in an attending career. Think of it like clinical charting: it’s not thrilling, but consistency is where the magic happens.

2) It can work for both spouses

If you’re married, each spouse can potentially do their own nondeductible IRA contribution and Roth conversiondoubling the Roth “space”
your household can create each year, assuming each spouse has eligible compensation and the pro-rata rule is managed per person.

3) It pairs well with other physician retirement moves

For physicians, the Backdoor Roth is often one piece of a layered approach:
max out employer plans, consider an HSA if eligible, and then use the nondeductible IRA → Roth conversion
to add more tax-advantaged savings beyond the workplace limits.

4) It helps build “tax flexibility” for high earners

Many physicians retire with a lot of pre-tax money (401(k), 403(b), 457(b), SEP, defined benefit plans).
That’s greatuntil RMDs arrive and you’re forced into taxable distributions. A Roth bucket gives you a lever to pull later.

A Practical Checklist for Physicians

Common Mistakes Physicians Make (So You Don’t Have To)

Mistake 1: Forgetting an old rollover IRA exists

Many physicians have a rollover IRA from a training-era job or a brief early-career position.
One forgotten account can trigger the pro-rata rule and turn the conversion into a taxable event.

Mistake 2: Not filing Form 8606 (or assuming the brokerage “handles it”)

Brokerages report contributions and conversions on tax forms, but you are responsible for correctly reporting basis.
Form 8606 is the mechanism.

Mistake 3: Mixing up “contribution year” and “conversion year”

You can contribute for a tax year up to the tax filing deadline, but conversions are reported in the calendar year they occur.
This isn’t fatal, but it can confuse tax software (and humans) if you don’t keep clean records.

Mistake 4: Turning a simple process into a complicated investment dance

Many physicians contribute to the traditional IRA, immediately invest aggressively, then convert latercreating gains that become taxable upon conversion.
A common “boring but effective” approach is to keep the contribution in a cash-like holding until conversion is completed, then invest inside the Roth.
(Less drama, fewer pennies to explain.)

When This Strategy Might Not Be a Fit

Even good strategies have “not today” moments. A nondeductible IRA can be less appealing if:

• You have large pre-tax IRA balances and no good way to move them into an employer plan, making conversions mostly taxable.
• You’re in a temporarily low tax bracket and would benefit more from deductible contributions or strategic Roth conversions of larger pre-tax balances.
• You’re not willing to track basis and file Form 8606 accurately (no shamejust don’t do half the strategy).

Bottom Line: For Physicians, the Nondeductible IRA Is Usually a ToolNot a Destination

If you’re a physician, a nondeductible IRA is rarely the headline act by itself.
It’s the bridge to getting money into a Roth IRA when income limits block the normal route.
That bridge can be incredibly valuable: repeatable, legal, widely used, and capable of building a meaningful pool of tax-free retirement dollars over time.

The key is doing it with intention:
understand the pro-rata rule, clean up old IRA balances if needed, and file Form 8606 like your future self is going to send you a thank-you note.

Friendly reminder: This is educational information, not individualized tax advice. Physicians often benefit from a CPA or advisor who understands
high-income retirement planning and the Backdoor Roth detailsespecially if you have SEP/SIMPLE IRAs, multiple employers, or complex practice income.

Physician Experiences: What This Looks Like in Real Life (and What Doctors Learn the Hard Way)

Most physicians don’t discover the nondeductible IRA strategy because they woke up one morning craving “tax diversification.”
They discover it because something breaksusually a direct Roth contribution that gets rejected, recharacterized, or flagged during tax prep.
The first experience is often a little humbling: you’re trusted to run a code blue, but suddenly you’re staring at a tax form thinking,
“Why are there so many lines… and why do they all sound judgmental?”

A common attending-year story goes like this: you finally hit your stride financially, you max your 401(k) at work,
and you decide to “also do a Roth.” Then tax season arrives and your MAGI is too high.
The nondeductible IRA becomes the workaround that feels almost too simplecontribute after-tax to a traditional IRA, then convert.
Many physicians describe the first successful Backdoor Roth as oddly satisfying, like placing a perfect central line:
it’s not flashy, but it’s clean and it works.

Another frequent experience is the “pro-rata ambush.” A physician might have an old rollover IRA from residency
or a SEP-IRA from moonlighting, sometimes opened years earlier and forgotten.
When they do the Backdoor Roth, they expect the conversion to be mostly non-taxable.
Then their accountant or tax software reports a surprisingly large taxable amount.
That moment tends to prompt a sudden, intense interest in the phrase “IRA aggregation rule.”
The lesson physicians share: before you do a Backdoor Roth, inventory every IRA you havetraditional, rollover, SEP, SIMPLE
because the IRS counts them together for the pro-rata calculation.

Physicians who work for hospitals or large groups often find relief when their employer plan accepts rollovers.
Rolling pre-tax IRA dollars into a 401(k) can simplify the Backdoor Roth dramatically by removing the big pre-tax IRA balance from the pro-rata bucket.
But physicians in smaller practices sometimes run into plans that don’t accept rollovers (or have limited options).
That can be frustratingespecially when you’re motivated to “do the right thing” financially.
In those cases, the practical experience is that you may need a more customized plan: perhaps a different employer plan,
a solo 401(k) for side income (if eligible), or a deliberate multi-year conversion strategy rather than the quick backdoor approach.

Another very real experience is learning to respect Form 8606. Physicians often assume the brokerage or the tax software “just handles it.”
In reality, doctors who’ve done nondeductible contributions for years will tell you the same thing:
keep your own records of your basis, confirm Form 8606 is filed correctly every year, and don’t assume last year’s settings carry forward.
The emotional arc is predictable: annoyance at first, then gratitude later when everything reconciles cleanly and you avoid double taxation.

Finally, many physicians describe the Backdoor Roth as a confidence builder. Once you understand this strategy,
retirement planning feels less like a black box and more like a series of repeatable steps.
You stop seeing “income limits” as a dead end and start seeing them as a detour sign.
Over time, the nondeductible IRA becomes part of a routine: max workplace plans, fund the backdoor Roth, track the paperwork,
and move on with life. It’s not glamorousbut neither is flossing, and we all know how that turns out.