The Backdoor Roth IRA: A Step-by-Step Guide

Direct Roth IRA contributions phase out above an income threshold. Conversions from a traditional IRA to a Roth have had no income limit since 2010. Put those two facts next to each other and you get the backdoor Roth: a way for high earners to fund a Roth IRA using the conversion route rather than the front door.

It is legitimate, it is common, and the mechanics are genuinely simple. What is not simple is the pro-rata rule, which quietly turns a tax-free manoeuvre into a taxable one for a large share of the people who attempt it. That section is the one to read twice.

Who this is for

You want a backdoor Roth if your income is above the Roth contribution phase-out and you still want money inside a Roth IRA. If your income is below the threshold, stop here — just contribute directly, which is simpler and involves no forms. How to open a Roth IRA covers that path.

The phase-out thresholds are set by the IRS and move every year with inflation, so check the current figures on the IRS page linked at the foot of this article rather than trusting any number you read in a blog post, including this one.

The four steps

Done at a single provider this takes two sessions a few days apart and about twenty minutes of actual work.

1. Open both accounts. A traditional IRA and a Roth IRA at the same brokerage. Same provider matters only because it makes step three a two-click internal transfer rather than a paperwork exercise. Fidelity and Schwab both do it well.

2. Contribute to the traditional IRA, and do not deduct it. Make a non-deductible contribution up to the annual limit. If your income is high enough to need a backdoor Roth, you are almost certainly above the deduction threshold anyway, so the contribution is non-deductible whether you elect it or not. Leave the money in cash.

3. Convert to the Roth IRA. Most brokerages have a Roth conversion button; some require a short form. Convert the whole balance. Because the contribution was after-tax and the balance has not grown, there is nothing to tax — which is the entire point of leaving it in cash and converting promptly.

4. Invest inside the Roth. Now buy whatever you actually want to hold. A broad index fund for most people; the three-fund portfolio is the standard answer.

People ask how long to wait between steps two and three. There is no statutory waiting period. Waiting a few days for the cash to settle is practical rather than legal.

The pro-rata rule, which is where this goes wrong

This is the part that costs people money, so here is the mechanism rather than the summary.

The IRS does not let you choose which dollars you convert. It treats all of your traditional, SEP and SIMPLE IRAs as one single pot, and every conversion is deemed to come proportionally from the after-tax and pre-tax parts of that pot. The proportion is measured from the total balance on 31 December of the conversion year, not on the day you converted.

An example makes it concrete. Suppose you have a $93,000 rollover IRA from an old 401(k), all pre-tax, and you make a $7,000 non-deductible contribution and convert it. Your combined IRA balance is $100,000, of which 7% is after-tax. So 7% of your conversion is tax-free and 93% is taxable income — you pay tax on $6,510 for the privilege of moving your own after-tax money.

Note what is not in that pot: your 401(k), your 403(b), your spouse’s IRAs, and any Roth accounts. The rule is per-person and covers IRAs only.

Which gives you the standard fix. If your current employer’s 401(k) accepts incoming rollovers — many do, some do not — you can roll your pre-tax IRA balance into the 401(k) before 31 December. That empties the IRA pot, and the conversion becomes clean. It is called a reverse rollover, and it is the difference between this strategy working and not working.

If your plan will not accept the rollover and you have a substantial pre-tax IRA, the honest answer is that the backdoor Roth is probably not for you. Fill your 401(k) and other tax-advantaged space first and revisit it if your plan changes.

Form 8606, and why it matters more than people think

Form 8606 is how you tell the IRS that your traditional IRA contribution was non-deductible. It establishes your basis — the after-tax money in the account — and it is what stops that money being taxed again when it comes out.

File it for every year you make a non-deductible contribution, even if you convert immediately and owe nothing. The form is not a tax bill; it is a record. Skipping it is how people end up unable to prove, years later, that $7,000 of a conversion was already taxed.

A common failure mode: the contribution happens in one calendar year and the conversion in the next, because you contributed in March for the prior tax year. That is fine, but it spans two Form 8606 filings, and tax software handles it badly unless you answer the interview questions precisely. Tax software for investors covers which packages get IRA basis right.

Is it legal, or is it a loophole waiting to close?

It is legal. Both component transactions are expressly allowed, and the IRS has never challenged the combination on step-transaction grounds. Congress removed the income limit on conversions in 2010 knowing exactly what would follow, and a 2017 conference report accompanying the Tax Cuts and Jobs Act referred to the practice approvingly enough that most practitioners treat the question as settled.

It has been proposed for elimination in draft legislation more than once and has survived each time. That is a reason to use the strategy while it exists, not a reason to avoid it.

The mega backdoor, in one paragraph

Different strategy, similar name. If your 401(k) permits after-tax contributions and either in-service withdrawals or in-plan Roth conversions, you can move far more than the IRA limit into Roth treatment each year. Both plan features are required and most plans lack at least one, so check your plan document before reading further about it. It is unrelated to the pro-rata rule described above.

The five mistakes that cost money

Investing before converting. If the money grows between contribution and conversion, the growth is taxable. Leave it in cash.

Forgetting the 31 December measurement date. Rolling your pre-tax IRA into a 401(k) in January does not help a conversion you made the previous August. The balance is measured at year end.

Accidentally deducting the contribution. Then the conversion is fully taxable. Check what your software did.

Doing it in a SEP IRA year. Self-employed people with a SEP often have a large pre-tax balance that counts in the pro-rata pot. A solo 401(k) avoids that problem, which is one of the better arguments for using one.

Not filing Form 8606. Covered above. It is the cheapest step and the most commonly skipped.

Frequently asked questions

Is the backdoor Roth IRA still allowed in 2026?

Yes. Both steps — a non-deductible traditional IRA contribution and a Roth conversion — remain permitted, and there is no income limit on conversions. Proposals to end the practice have been introduced and have not passed.

How long should I wait between the contribution and the conversion?

There is no required waiting period. Most people wait a few days for the cash to settle. Leaving the money uninvested while you wait is what keeps the conversion tax-free, because there is no growth to tax.

Does my 401(k) balance count towards the pro-rata rule?

No. The pro-rata calculation covers traditional, SEP and SIMPLE IRAs only. A 401(k) or 403(b) balance is excluded, which is why rolling a pre-tax IRA into your employer plan before year end can make a conversion clean.

What if I already have a large traditional IRA?

Either roll it into a current employer 401(k) that accepts incoming rollovers before 31 December, or accept that most of your conversion will be taxable. If neither works, the backdoor Roth is usually not worth doing.

Do I have to file Form 8606 even if I owe no tax?

Yes. The form records that your contribution was after-tax. Without it you have no documented basis, and that money can be taxed a second time on withdrawal.

Can my spouse and I each do one?

Yes. The pro-rata rule is applied per person, so one spouse having a large pre-tax IRA does not affect the other spouse’s conversion.