The backdoor Roth IRA, step by step

High earners can't contribute to a Roth IRA directly — but they can contribute to a traditional IRA and convert it. Here's exactly how the backdoor Roth works, the pro-rata trap that blows it up, and when to bother.

By StevenPG April 17, 2026 Reviewed May 21, 2025 6 min read

Educational content only — not financial, tax, or legal advice.

A Roth IRA is one of the best accounts in the US tax code: you contribute after-tax dollars, and every dollar of growth comes out tax-free in retirement. The catch is that the IRS phases out Roth contributions above certain incomes. In 2024, a single filer earning more than $161,000 can’t contribute a cent directly.

The “backdoor” Roth is the legal workaround. It’s been explicitly sanctioned by Congress since 2017, and if you’re over the income limit, it’s usually the cheapest retirement move you can make.

The two steps

A backdoor Roth is two separate transactions, done back-to-back:

Contribute to a traditional IRA. There is no income limit on non-deductible traditional IRA contributions. Anyone with earned income can put in up to the annual limit ($7,000 in 2024, $8,000 if 50+).
Convert the traditional IRA to a Roth IRA. There is no income limit on Roth conversions. You pay income tax on any earnings between the contribution and the conversion — which is why you do the conversion fast, before the money has time to grow.

If you contribute $7,000 on Monday and convert $7,001 on Friday, you owe tax on $1. That’s the whole trick.

The pro-rata rule — the landmine

This is the part most people get wrong. The IRS doesn’t let you cherry-pick which dollars you’re converting. If you have any pre-tax money in any traditional IRA, SEP-IRA, or SIMPLE IRA on December 31 of the conversion year, your conversion is treated as a pro-rata mix of pre-tax and after-tax dollars.

Example: You have $93,000 of pre-tax money in a rollover IRA (from a 401(k) from your last job) and you make a $7,000 non-deductible contribution. Your total IRA balance is $100,000, of which 7% is after-tax. When you convert $7,000, only 7% of the conversion ($490) comes out tax-free — the other $6,510 is taxed as ordinary income.

Worse: the pro-rata taint sticks. You now have $6,510 of “basis” scattered across the remaining $93,000, and every future conversion is also partially taxable.

The fix: before doing a backdoor Roth, get pre-tax IRA balances to zero by December 31. The usual move is a reverse rollover: roll the pre-tax IRA into your current employer’s 401(k), if the plan accepts rollovers in. Not all do — check first.

Roth IRAs and workplace plans (401(k), 403(b), TSP) don’t count toward pro-rata. Only traditional, SEP, and SIMPLE IRAs count.

The paperwork — Form 8606

Both steps get reported on IRS Form 8606, which tracks your non-deductible IRA basis. File it with your tax return for the year of the contribution and the year of the conversion (often the same year, but not always).

Skip the 8606 and the IRS assumes your contribution was fully deductible. When you convert, they tax the entire amount — you effectively pay tax twice on the same dollars. Don’t skip the 8606.

Tax software handles 8606 correctly if you enter both the contribution and the conversion. If you use a CPA, make sure they know about the backdoor Roth; it’s a common source of filing errors at firms that mostly see W-2 returns.

When the backdoor Roth is worth it

The backdoor Roth is almost always worth it if:

You’re over the direct Roth income limit
You have no pre-tax IRA balances (or can zero them out via 401(k) rollover)
You expect your retirement tax rate to be at least as high as your current rate — which is true for most high earners, given today’s historically low brackets

It’s less valuable if:

You have a large pre-tax IRA you can’t move — the pro-rata drag may eat the benefit
You’re in a very high state tax bracket now and plan to retire somewhere with no state tax — traditional may still beat Roth
You’re close to retirement and your income will drop significantly

Backdoor vs. mega backdoor

These names get confused constantly. Two different accounts:

Backdoor Roth IRA: $7,000/year limit, uses a traditional IRA as the conveyor belt. Available to anyone with earned income.
Mega backdoor Roth: up to ~$46,000/year, uses after-tax contributions inside a 401(k), then an in-plan conversion or rollout to a Roth IRA. Only available if your 401(k) plan explicitly supports it — most don’t.

If your employer’s plan allows after-tax contributions and in-service rollovers, the mega backdoor is roughly six times more valuable than the backdoor. Check the plan documents for “after-tax” contributions (distinct from Roth 401(k)) and “in-service withdrawal” or “in-service rollover.”

The annual routine

Once you’ve set it up, the backdoor Roth becomes a 15-minute task each January:

Contribute the annual limit to a traditional IRA.
Wait until the money clears (usually a day or two).
Convert the full balance to a Roth IRA.
Confirm the traditional IRA balance reads $0.
File Form 8606 with that year’s taxes.

Set a recurring calendar reminder. The earlier in the year you contribute, the more tax-free compounding you capture — the difference between January 2 and April 15 of the following year is 15+ months of growth.

Step-by-step walkthrough (first-time setup)

If you’ve never done a backdoor Roth before, here’s the complete sequence — including what to actually click at a brokerage.

Step 1: Verify you’re over the income limit. For 2024, the direct Roth IRA contribution phases out at $146,000–$161,000 (single) or $230,000–$240,000 (married filing jointly). If you’re below the lower threshold, just contribute to a Roth IRA directly — the backdoor is unnecessary.

Step 2: Check your existing traditional IRA balances. Log in to every IRA account you hold — including rollover IRAs from old 401(k)s. Add up the total pre-tax balance across all traditional, SEP, and SIMPLE IRAs. If the total is $0, you’re clean. If it’s not, see the pro-rata section and decide whether to zero it out first.

Step 3: Open a traditional IRA if you don’t have one. Fidelity, Vanguard, and Schwab all support this. The account type is “Traditional IRA.” This takes about 5 minutes online.

Step 4: Contribute the non-deductible annual limit. For 2025, this is $7,000 ($8,000 if you’re 50 or older). Transfer cash from your bank account to the traditional IRA. Do not invest the cash — leave it as a money market position. You’re about to move it.

Step 5: Wait for the contribution to settle. Most brokerages clear transfers in 1–3 business days. Once the cash shows as available, proceed.

Step 6: Convert the traditional IRA balance to a Roth IRA. At most brokerages, this is under “Convert to Roth IRA” or “Roth Conversion” in the account settings. Select the traditional IRA, choose “convert the entire balance,” and select your Roth IRA as the destination. If you don’t have a Roth IRA, you’ll open one as part of this step.

Step 7: Verify the traditional IRA reads $0. Check the account the next day. The traditional IRA should show a $0 balance. If it shows a few cents from overnight interest, convert that too.

Step 8: Invest the Roth IRA balance. The converted money lands as cash in the Roth IRA. Now invest it — same funds you’d use in any long-term account (total market index, S&P 500, etc.).

Step 9: File Form 8606 with your taxes. This form tracks the non-deductible basis. It’s usually generated automatically by tax software (TurboTax, H&R Block) when you enter the contribution as non-deductible and enter the 1099-R from the conversion. If you use a CPA, specifically tell them: “I made a non-deductible traditional IRA contribution and converted it to a Roth. Please prepare Form 8606.”

The pro-rata rule explained with an example

The pro-rata rule is the most common reason backdoor Roths fail or create unexpected tax bills. The IRS treats all your traditional IRA money as a single pool when calculating how much of a conversion is taxable.

The formula:

Taxable percentage = Pre-tax IRA balance ÷ (Pre-tax IRA balance + After-tax IRA balance)

Clean example (no pre-tax IRAs):

Pre-tax IRA balance: $0
Non-deductible contribution: $7,000
Taxable percentage: $0 ÷ $7,000 = 0%
Tax owed on $7,000 conversion: $0

Contaminated example (rollover IRA present):

Rollover IRA balance (pre-tax): $63,000
Non-deductible contribution: $7,000
Total IRA balance: $70,000
Taxable percentage: $63,000 ÷ $70,000 = 90%
Tax owed on $7,000 conversion: 90% × $7,000 = $6,300 taxed as ordinary income

At a 32% marginal rate, that’s $2,016 in unexpected tax on a $7,000 move. The backdoor Roth created a tax bill rather than avoided one.

Fixing it: the reverse rollover. Move the pre-tax IRA money into your current employer’s 401(k) plan. This is called a “reverse rollover” and it removes the balance from the pro-rata calculation. After the rollover, your traditional IRA balance is $0 and the backdoor Roth is clean.

Not all 401(k) plans accept incoming rollovers. Check your Summary Plan Description or ask HR directly. If your plan doesn’t allow it, the backdoor Roth may not be viable until you have access to a plan that does, or until you’re at an employer whose plan accepts rollovers.

Common mistakes and how to avoid them

Not filing Form 8606. Without Form 8606, the IRS has no record of your non-deductible basis. When you eventually convert or withdraw, the full amount gets taxed as if it were all pre-tax — you pay tax twice on the same dollars. File 8606 every year you make a non-deductible contribution or conversion.

Investing the traditional IRA before converting. If you invest the $7,000 in January and the market rises to $7,400 before you convert in March, you owe tax on $400. Convert quickly — within days of the contribution settling — to minimize the taxable gain.

Missing the 5-year rule for earnings. The original $7,000 in the Roth is converted money, not a contribution, so the 5-year rule on conversions applies: earnings on that converted amount may carry a 10% penalty if withdrawn before age 59½ and before 5 years have elapsed since the conversion year. For most high earners doing this as a retirement strategy, this rarely matters — but for someone doing a backdoor Roth while planning early access to Roth funds, it’s worth knowing.

Doing it when you’ll leave your employer soon. If you have a large pre-tax 401(k) and are about to leave a job, you need to decide whether to roll the 401(k) into an IRA. Rolling into an IRA creates a large pre-tax balance that contaminates future backdoor Roths. Consider rolling to your new employer’s 401(k) instead, or rolling to a solo 401(k) if you have self-employment income.

Contributing for the wrong year. You can contribute to an IRA for the prior tax year up until April 15. If you contribute in February 2025 for tax year 2024, tell the brokerage the contribution is for 2024 — otherwise it defaults to 2025. A mismatched contribution year and 1099-R year creates Form 8606 headaches.