What Is a Backdoor Roth IRA? How It Works and Tax Rules

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A backdoor Roth IRA is not a separate type of account. It is a two-step funding method for a Roth IRA, used by people whose income is too high to contribute to a Roth IRA directly. You make a nondeductible (after-tax) contribution to a traditional IRA, then convert that money to a Roth IRA. Since 2010, conversions have had no income limit, so the conversion step works at any income level. Done cleanly, the process creates little or no extra tax, and the money then grows inside a Roth with the same withdrawal rules as any other Roth IRA.

How a backdoor Roth IRA works

The process has four steps. The first three move the money; the fourth tells the IRS what happened.

1. Open a traditional IRA

Open a traditional IRA at a brokerage, usually at the same firm that holds, or will hold, your Roth IRA. Keeping both accounts at one firm makes the conversion an internal transfer.

2. Make a nondeductible contribution

Contribute after-tax cash to the traditional IRA. High earners covered by a workplace retirement plan generally cannot deduct this contribution anyway, which is why it is “nondeductible.” The money has already been taxed as income in the year you earned it, so it forms your basis in the IRA.

The contribution cannot exceed the annual IRA limit or your earned income for the year, whichever is lower. If you have little or no earned income, a spousal IRA contribution based on your spouse’s earned income may still be possible when you file jointly.

3. Convert the traditional IRA to a Roth IRA

Request a conversion of the traditional IRA balance to your Roth IRA. Converted basis is not taxed again. Any growth on the money before conversion is taxable, which is why many people leave the contribution in cash or a money market fund and convert soon after the deposit clears. Once the money is in the Roth IRA, you choose the investments.

The IRS does not require a waiting period between contribution and conversion. Some advisers prefer a gap long enough for the two transactions to appear on separate statements. That leaves a record that they were distinct steps, but it does not change the tax.

4. File Form 8606

Your custodian reports the contribution on Form 5498 and the conversion on Form 1099-R, which on its own looks like a taxable event. Form 8606, Nondeductible IRAs, reports the nondeductible contribution (Part I) and the conversion (Part II), showing that the converted amount was already-taxed basis. File it for the year of the contribution and the year of the conversion. If both happen in the same year, one form covers both.

Contribution and income limits

A backdoor Roth does not raise the amount you can put into a Roth IRA. It only restores access to the standard IRA limit for people above the income cutoffs. The limit is shared across all your traditional and Roth IRAs for the year.

Annual IRA contribution limits:

• 2025: $7,000, plus a $1,000 catch-up at age 50 or older
• 2026: $7,500, plus a $1,100 catch-up at age 50 or older

Direct Roth contribution phase-outs by modified adjusted gross income (MAGI):

• 2025: reduced from $150,000 and eliminated at $165,000 (single and head of household); reduced from $236,000 and eliminated at $246,000 (married filing jointly); $0 to $10,000 for married filing separately
• 2026: reduced from $153,000 and eliminated at $168,000 (single and head of household); reduced from $242,000 and eliminated at $252,000 (married filing jointly); $0 to $10,000 for married filing separately

A married couple filing jointly in 2026 can therefore each run a backdoor Roth through their own IRA, for up to $7,500 apiece ($8,600 each at 50 or older), provided their combined earned income covers both contributions. Contributions for a tax year can be made until the original due date of that year’s return, typically April 15 of the following year. You can repeat the process every year.

Tax implications of a backdoor Roth

When nothing goes wrong, the backdoor Roth creates no new tax: the contribution came from taxed income, and converting basis is not taxable. Three things can change that.

The pro-rata rule

When you convert, the IRS does not let you choose to convert only your after-tax dollars. It treats all of your non-Roth IRAs as one pool, including traditional, rollover, SEP and SIMPLE IRAs, and taxes each conversion in proportion to the pre-tax share of that pool. The calculation on Form 8606 uses your combined balances as of December 31 of the conversion year, plus any amounts converted or distributed during the year.

The formula:

Nontaxable share = total after-tax basis ÷ total non-Roth IRA value Taxable amount = amount converted × (1 − nontaxable share)

Hypothetical example: You hold a rollover IRA with $63,000 of pre-tax money. You contribute $7,000 nondeductible to a new traditional IRA and convert that $7,000. Your total non-Roth IRA value is $70,000, of which $7,000 (10%) is basis. Only 10% of the conversion is tax-free, so $6,300 of the $7,000 is taxable at your ordinary income rate, even though the account you converted held nothing but after-tax money.

Balances in employer plans such as 401(k)s are not part of this pool. That is why some people roll pre-tax IRA money into a current employer’s 401(k), if the plan accepts incoming rollovers, before the year-end measurement date. The rule is applied per person, so one spouse’s pre-tax IRA does not affect the other spouse’s backdoor conversion.

Earnings before conversion

If your $7,000 contribution grows to $7,040 before you convert, the $40 of growth is pre-tax money and is taxed when converted. Small amounts like this are common when a contribution sits in a cash sweep that pays interest. The tax is minor, but it has to be reported.

Missing or wrong paperwork

Skipping Form 8606 can lead to paying tax twice on the same dollars: once when you earned them and again when the conversion is reported as taxable. Since 2018, a Roth conversion can no longer be recharacterized (undone), so a conversion that turns out to be taxable under the pro-rata rule stays taxable.

Example of a backdoor Roth IRA

Hypothetical: Dana is 34, files single and expects 2026 MAGI of $185,000, above the $168,000 point where direct Roth contributions stop. She has no traditional, SEP or SIMPLE IRA balances, and she already contributes to her employer’s 401(k).

1. Open a traditional IRA. In February 2026, Dana opens a traditional IRA at the brokerage that holds her old Roth IRA from earlier years.
2. Contribute. She deposits $7,500, the 2026 limit for someone under 50, and leaves it in the settlement fund. She does not take a deduction.
3. Convert. After the deposit settles, she converts the full balance. It has earned $6 of interest, so $7,506 moves to her Roth IRA, and she invests it in a broad index fund.
4. Report. On her 2026 return, Form 8606 shows $7,500 of basis and a $7,506 conversion. The taxable amount is $6.

Because Dana’s year-end non-Roth IRA balance is zero, the pro-rata rule takes nothing extra. If she had kept a $40,000 rollover IRA from a prior job, roughly 84% of her conversion would have been taxable instead.

Why use a backdoor Roth IRA?

The strategy matters because of what happens after the money lands in the Roth:

• Tax-free growth and withdrawals. Earnings come out tax-free in a qualified distribution, which requires being at least 59½ and having held a Roth IRA for at least five years. Untaxed compound interest over long periods is where most of the value comes from.
• Flexible access. Roth withdrawals come out in order: regular contributions, then converted amounts, then earnings. Each conversion has its own five-year clock for the 10% early withdrawal penalty if you are under 59½. For early retirees in the FIRE movement, these rules shape how a Roth can bridge the years before 59½.
• No required minimum distributions for the original owner.
• Lower taxable income in retirement. Qualified Roth withdrawals do not count toward MAGI. This helps keep the taxation of Social Security benefits and income-based Medicare premiums lower.

Backdoor Roth vs. related options

Backdoor Roth vs. leaving money in a nondeductible traditional IRA. For most high earners, the Roth is the better destination. A nondeductible traditional IRA’s earnings are taxed as ordinary income when withdrawn, while after conversion they can come out tax-free. The main case for holding off is a pre-tax IRA balance that would make the conversion largely taxable under the pro-rata rule.

Backdoor Roth vs. direct Roth contribution. If your MAGI is below the phase-out range, contribute to the Roth IRA directly. The backdoor adds steps and paperwork for no benefit.

Backdoor Roth vs. Roth 401(k). A Roth 401(k) has no income limit and much higher contribution ceilings: $23,500 for 2025 and $24,500 for 2026, plus catch-up contributions at 50 and older. It requires an employer that offers it. Federal employees have a similar option in the Roth side of the Thrift Savings Plan. The two are not either/or: you can fund a Roth 401(k) and do a backdoor Roth IRA in the same year.

Backdoor vs. mega backdoor Roth. The mega backdoor uses a 401(k) plan that allows after-tax contributions beyond the regular deferral limit, plus in-plan Roth conversions or in-service withdrawals to a Roth IRA. It can move far more money each year but depends entirely on plan features.

Backdoor vs. an ordinary Roth conversion. Any traditional IRA can be converted, with tax owed on the pre-tax portion. A backdoor Roth is a conversion designed to have almost no pre-tax portion.

Limitations of a backdoor Roth IRA

• Pre-tax IRA balances. Existing traditional, SEP, SIMPLE or rollover IRA money can make most of each conversion taxable unless it is moved into an employer plan first.
• No undo. An error in sequence or timing is permanent for that year.
• Earned income requirement. You or your spouse need earned income at least equal to the contribution.
• Five-year rules. Converted dollars withdrawn within five years of each conversion can face a 10% penalty if you are under 59½, and earnings need separate conditions to come out tax-free.
• Annual paperwork. Form 8606 is required every year you contribute or convert, and basis records must be kept until the account is fully withdrawn.
• Small annual scale. The amount is capped at the IRA limit. A Roth 401(k) or mega backdoor moves more.

FAQs

The Bottom Line

The backdoor Roth suits people whose income is too high for direct Roth contributions, especially those with no pre-tax IRA balances. Converting soon after the deposit, filing Form 8606 and checking year-end IRA balances keeps the tax near zero. Anyone holding rollover or SEP money should consider moving it into an employer plan that accepts rollovers before converting.