What is a backdoor Roth IRA?
A backdoor Roth IRA is not a special account. It is a two-step strategy: you make a nondeductible contribution to a traditional IRA, then convert that money to a Roth IRA. Roth conversions have no income limit, so people whose income is too high for a direct Roth contribution can still move money into a Roth this way.
U.S. guidance reviewed November 2, 2026. Contribution limits and income ranges are adjusted for inflation each year, and official updates may take time to appear here. Confirm the current figures on IRS.gov or with a tax professional. The cover is an AI-generated conceptual illustration.
Who usually considers it?
Direct Roth IRA contributions phase out at higher modified adjusted gross income (MAGI). The IRS publishes the exact phase-out ranges each year for single filers and married couples filing jointly. If your income is inside or above the range, a direct contribution may be reduced or not allowed, and the backdoor route becomes worth reviewing.
The combined yearly limit for all your traditional and Roth IRA contributions still applies. A backdoor Roth does not let you contribute more than the annual IRA limit; it only changes how you get the money into a Roth.
Step-by-step
- Confirm eligibility. You (or your spouse, for a spousal IRA) need taxable compensation at least equal to the contribution.
- Check every IRA balance first. Add up all traditional, rollover, SEP and SIMPLE IRAs in your name. This is the step most people skip.
- Contribute to a traditional IRA and do not take a deduction for it.
- Convert to your Roth IRA. Many people convert soon after the money settles so little or no earnings build up. Any earnings before conversion are taxable.
- File Form 8606 with your tax return to report the nondeductible contribution and the conversion.
The pro-rata trap explained
The IRS does not let you choose to convert only your after-tax dollars. When you convert, the taxable share is based on the ratio of after-tax basis to the total value of all your traditional, SEP and SIMPLE IRAs at the end of the year (December 31), plus the amount converted. Accounts at different firms count together. Roth IRAs and workplace plans such as a 401(k) do not count.
That means a pre-tax rollover IRA from an old job can turn a "tax-free" backdoor conversion into a mostly taxable one, even if you keep it at a different brokerage.
Worked example
Illustrative numbers only. Suppose you contribute $7,000 nondeductible and convert it.
| | Clean IRA slate | $63,000 pre-tax rollover IRA |
|---|---|---|
| Total IRA value used in the ratio | $7,000 | $70,000 |
| After-tax share | 100% | 10% |
| Taxable part of $7,000 conversion | About $0 | About $6,300 |
| Extra tax at a 24% bracket | About $0 | About $1,512 |
In the second case, 90% of the conversion is taxable because 90% of all IRA money is pre-tax. The remaining after-tax basis carries forward on Form 8606.
How people avoid the trap
- Roll pre-tax IRA money into a workplace plan that accepts roll-ins, such as a current 401(k), before December 31 of the conversion year. Check plan rules and fees first.
- Convert the pre-tax balance too, accepting the tax now, if that fits your tax plan.
- Skip the strategy for a year if the tax cost outweighs the benefit.
Because the snapshot is taken at year-end, a rollover finished in early January may be too late for the prior year's conversion. Plan before the holidays when firms process requests more slowly.
Common mistakes
- Taking a deduction for the traditional IRA contribution.
- Forgetting SEP or SIMPLE IRAs from side or small-business income.
- Not filing Form 8606, which can lead to being taxed twice later.
- Assuming a spouse's IRA balances count toward yours — each person's ratio is calculated separately.
Quick checklist before you convert
- Confirm your MAGI against this year's IRS Roth phase-out range.
- List every IRA you own and its expected December 31 value.
- Decide how to handle any pre-tax balance.
- Keep confirmations of the contribution and conversion.
- Give your tax preparer what they need to complete Form 8606.
Tracking accounts in one place makes step two easier. See year-end retirement contributions, 2027 tax brackets explained and the year-end tax checklist.
Sources
MoneyPatrol is not a financial, tax, investment, legal or accounting advisor. This article is for general educational purposes only and is not a substitute for personalised advice from a qualified professional. See our full disclaimer.
