Financial Disclaimer: This article provides educational information about backdoor Roth IRA strategies and should not be considered personalised financial or tax advice. Tax rules are complex and your situation is unique. We recommend consulting with a qualified tax professional or financial adviser before implementing any backdoor Roth IRA strategy. The Savvy Investor Limited is not a registered investment adviser and does not provide personalised investment recommendations.
You earn $180,000 a year. You want to contribute to a Roth IRA for tax-free retirement growth. But the IRS says no because you earn too much.
Here’s the thing: there’s a completely legal workaround that lets you contribute $7,000 to a Roth IRA every year (or $8,000 if you’re 50 or older), regardless of your income. It’s called the backdoor Roth IRA, and it’s been explicitly preserved in the tax code despite multiple attempts to close it.
This strategy works for anyone earning above the 2025 Roth IRA income limits of $165,000 for single filers or $246,000 for married couples filing jointly. You make a non-deductible contribution to a traditional IRA, then immediately convert it to a Roth IRA. The result: tax-free growth for decades.
But here’s where most people get tripped up. There’s a pro-rata rule that can turn this tax-free strategy into a tax nightmare if you have other traditional IRA balances. And filing Form 8606 incorrectly can trigger IRS audits or double taxation.
This guide walks you through the exact process for Fidelity, Vanguard, and Schwab. You’ll learn how to avoid the pro-rata trap, when to convert for maximum tax efficiency, and how to file Form 8606 without making costly mistakes. By the end, you’ll know exactly how to execute a backdoor Roth IRA from start to finish.
Key Takeaways
- Income limits don’t stop you: Backdoor Roth IRAs let you contribute $7,000-$8,000 annually to a Roth IRA regardless of income, completely legally.
- Two-step process: Make a non-deductible traditional IRA contribution, then convert it to Roth. Each step takes minutes with the right broker.
- Pro-rata rule is critical: If you have other traditional, SEP, or SIMPLE IRA balances, most of your conversion will be taxable. You must clear these first.
- Timing matters but isn’t strict: The IRS has confirmed there’s no waiting period requirement. Convert as soon as funds settle.
- Form 8606 is mandatory: File this with your tax return to track basis. Without it, the IRS assumes your entire conversion is taxable.
- Strategy is protected: Despite political discussions, backdoor Roth IRAs were explicitly preserved in the One Big Beautiful Bill Act signed in July 2025.
Table of Contents
- What Is a Backdoor Roth IRA?
- 2025 Income Limits and Contribution Amounts
- Who Should Use the Backdoor Roth Strategy?
- Pro-Rata Rule Calculator: Check Your Tax Impact
- Step-by-Step: Fidelity Backdoor Roth
- Step-by-Step: Vanguard Backdoor Roth
- Step-by-Step: Schwab Backdoor Roth
- Understanding the Pro-Rata Rule
- How to Avoid the Pro-Rata Tax Trap
- Filing Form 8606: Line-by-Line Guide
- Timing Your Conversion for Maximum Tax Efficiency
- Common Backdoor Roth Mistakes to Avoid
- Backdoor Roth vs Mega Backdoor Roth
- Frequently Asked Questions
What Is a Backdoor Roth IRA?
A backdoor Roth IRA isn’t a special type of account. It’s a two-step process that lets high earners access Roth IRA benefits despite exceeding income limits.
Here’s how it works:
Step 1: You make a non-deductible contribution to a traditional IRA. There are no income limits for non-deductible traditional IRA contributions. Anyone with earned income can do this.
Step 2: You immediately convert that traditional IRA to a Roth IRA. There are no income limits for Roth conversions either.
The result: money flows into your Roth IRA that couldn’t get there through the front door. The conversion isn’t taxable because you already paid taxes on the contribution (it was non-deductible). Your money then grows tax-free for decades.
This strategy has been around since 2010, when Congress removed income limits on Roth conversions. It wasn’t a loophole they missed. It was an intentional policy change. And in 2025, Congress explicitly preserved it in the One Big Beautiful Bill Act, rejecting proposals to eliminate the strategy.
Why It’s Perfectly Legal
Some people worry this is tax evasion or will trigger audits. It’s neither.
The IRS acknowledges backdoor Roth IRAs in Publication 590-A. The strategy relies on three separate tax code provisions that work together:
- IRC Section 408(o): Allows non-deductible traditional IRA contributions regardless of income
- IRC Section 408A(c)(3)(B): Removed income limits on Roth conversions in 2010
- IRC Section 408A(d)(3): Allows tax-free conversion of after-tax IRA contributions
You report everything on Form 8606. The IRS knows exactly what you’re doing. There’s nothing hidden or questionable about it.
2025 Income Limits and Contribution Amounts
The backdoor Roth strategy exists because direct Roth IRA contributions have income limits. Here’s what you’re working around:
2025 Roth IRA Income Phase-Out Ranges
Single Filers and Head of Household:
- Phase-out begins: $150,000 MAGI
- Phase-out ends: $165,000 MAGI
- No direct Roth contribution allowed at or above $165,000
Married Filing Jointly:
- Phase-out begins: $236,000 MAGI
- Phase-out ends: $246,000 MAGI
- No direct Roth contribution allowed at or above $246,000
Married Filing Separately (lived with spouse during the year):
- Phase-out: $0 to $10,000
- Essentially eliminates direct Roth contributions for this filing status
If your modified adjusted gross income (MAGI) exceeds these limits, you cannot make a direct Roth IRA contribution. But you can use the backdoor strategy.
2025 Contribution Limits
The amount you can contribute through the backdoor matches standard IRA limits:
- Under age 50: $7,000 per year
- Age 50 or older: $8,000 per year ($7,000 base + $1,000 catch-up)
These limits haven’t changed from 2024, but they’re increasing to $7,500 and $8,500 respectively in 2026.
If you’re married, each spouse can do a separate backdoor Roth IRA. A married couple where both spouses are 50 or older can get $16,000 into Roth IRAs in 2025 through this strategy.
What Is MAGI and How Do You Calculate It?
Modified Adjusted Gross Income (MAGI) determines your Roth IRA eligibility. Start with your Adjusted Gross Income (AGI) from line 11 of Form 1040, then add back certain deductions:
- Traditional IRA deduction (if you took one)
- Student loan interest deduction
- Foreign earned income exclusion
- Foreign housing exclusion or deduction
- Excluded savings bond interest
- Excluded employer-provided adoption benefits
Here’s what matters: Roth conversions don’t count towards MAGI for Roth contribution eligibility. This is critical. Your backdoor Roth conversion doesn’t disqualify you from doing another backdoor Roth the following year.
Who Should Use the Backdoor Roth Strategy?
Not everyone above the income limits should do a backdoor Roth IRA. This strategy makes sense in specific situations.
You’re an Ideal Candidate If:
You have no other traditional IRA balances. This is the most important criterion. If you have no traditional, SEP, or SIMPLE IRA money sitting anywhere, the backdoor Roth works perfectly. Your conversion will be 100% tax-free.
You earn above the Roth IRA income limits. Obviously. If you earn $140,000 as a single filer, just contribute directly to a Roth IRA. Don’t overcomplicate things.
You’ve maxed out your 401(k). The backdoor Roth makes most sense after you’ve captured your full employer match and maxed out your 401(k) contributions. It’s the next step in tax-advantaged retirement savings.
You want Roth benefits over traditional deductions. Even if you could deduct a traditional IRA contribution, you prefer tax-free growth and tax-free withdrawals in retirement. This typically makes sense if you expect to be in the same or higher tax bracket in retirement.
You have a long time horizon. Roth IRAs shine over decades. If you’re 55 and planning to retire at 60, the backdoor Roth still works, but the tax-free growth period is shorter. If you’re 35, you have 30+ years of tax-free compounding ahead.
Proceed With Caution If:
You have existing traditional IRA balances. The pro-rata rule will make most of your conversion taxable. You’ll need to either roll those balances into a 401(k), convert everything to Roth and pay the tax, or skip the backdoor Roth strategy entirely. We’ll cover this in detail later.
You’re self-employed with a SEP IRA. SEP IRAs count in the pro-rata calculation. If you’re making large SEP contributions (say, $40,000 per year), a $7,000 backdoor Roth will be 85%+ taxable. The strategy loses most of its appeal.
You expect much lower income in retirement. If you’re currently in the 32% bracket but expect to be in the 12% bracket in retirement, traditional tax-deferred accounts might serve you better than Roth accounts. Run the numbers carefully.
Don’t Bother If:
You’re still within the income limits. If you can contribute directly to a Roth IRA, do that. It’s simpler and involves less paperwork.
You haven’t maxed out other retirement accounts. Get your full 401(k) match first. That’s a guaranteed 50-100% return. Max out your 401(k) ($23,500 in 2025) before adding a backdoor Roth. If you have an HSA, max that out too. The HSA’s triple tax advantage beats even the Roth IRA.
Pro-Rata Rule Calculator: Check Your Tax Impact
Before you start the backdoor Roth process, you need to know if the pro-rata rule will create a tax bill. This calculator shows you exactly how much of your conversion will be taxable based on your existing IRA balances.
How to use this calculator: Enter your total traditional IRA balances (including SEP and SIMPLE IRAs) and your planned conversion amount. The calculator shows you what percentage will be tax-free and what you’ll owe taxes on.
Backdoor Roth Pro-Rata Tax Calculator
If the calculator shows more than 10% of your conversion is taxable, you need to address your existing IRA balances before proceeding. The strategies to fix this are covered in the “How to Avoid the Pro-Rata Tax Trap” section below.
Step-by-Step: Fidelity Backdoor Roth IRA
Fidelity is the largest IRA custodian in the US. The process is straightforward once you know the workaround for their bank settlement timing quirk.
One-Time Account Setup (15 Minutes)
Step 1: Open a Traditional IRA
Log into Fidelity.com and navigate to “Open an Account” under the Accounts & Trade menu. Select “Traditional IRA” under Retirement & IRAs. The online application takes about 10 minutes. You don’t need to specify anything about non-deductible contributions during setup. That designation happens when you file Form 8606 with your taxes.
Step 2: Open a Roth IRA
Repeat the process but select “Roth IRA” instead. Don’t fund this account yet. It just needs to exist. Keep both accounts open permanently. You’ll reuse them every year.
Step 3: Link Your Bank Account
Go to digital.fidelity.com/ftgw/digital/bank-setup and add your checking or savings account. Fidelity uses standard Electronic Funds Transfer (EFT), which is free but takes 1-3 business days for the first transfer. After that, transfers are instant.
Annual Contribution Process (10 Minutes)
Step 4: Make Your Non-Deductible Contribution
Go to digital.fidelity.com/ftgw/digital/transfer/ and select “Deposit, Transfer, or Rollover.” Choose your Traditional IRA as the destination. Enter $7,000 (or $8,000 if you’re 50+). Select the contribution year (2024 or 2025). The IRS lets you make contributions for the previous year until April 15.
Transfer the money from your linked bank account. It lands in your traditional IRA as cash within 1-3 business days.
Step 5: The Fidelity Settlement Quirk
Here’s where Fidelity gets tricky in 2025. If you try to convert immediately after your contribution settles, you’ll get an error message saying the funds aren’t available for transfer. This is because Fidelity implemented a 25+ day bank settlement period.
The workaround: buy a money market fund (SPAXX is Fidelity’s default) with your $7,000. Money market funds settle immediately. Then sell the money market fund. Your cash becomes instantly available for conversion. This adds 30 seconds to the process.
Here’s exactly how to do it: In your Traditional IRA, go to Trade and select SPAXX (Fidelity Government Money Market Fund). Buy $7,000 worth. The trade executes immediately. Then immediately sell all your SPAXX shares. Your cash is now available for conversion with no waiting period.
Step 6: Convert to Roth
Navigate to “Account Features” and select “Convert to Roth IRA.” Choose your Traditional IRA as the source and your Roth IRA as the destination. Enter the full balance (around $7,000 plus a few dollars of money market growth).
Fidelity asks if you want to withhold federal taxes. Select “No withholding” because your contribution was already after-tax. If you withhold taxes, you’re reducing your Roth IRA balance unnecessarily.
Confirm the conversion. The money moves to your Roth IRA within 1-2 business days. You’re done until next year.
Timeline Summary for Fidelity
- Day 1: Initiate EFT transfer from bank to Traditional IRA
- Day 2-3: Cash settles in Traditional IRA
- Day 3: Buy then sell SPAXX money market fund (instant settlement)
- Day 3: Initiate Roth conversion
- Day 4-5: Conversion complete, money in Roth IRA
- Total elapsed time: 4-5 days
Step-by-Step: Vanguard Backdoor Roth IRA
Vanguard has the most user-friendly backdoor Roth process. They built a dedicated “Convert to Roth IRA” button that makes the process obvious.
One-Time Account Setup (15 Minutes)
Step 1: Open Traditional and Roth IRAs
Log into investor.vanguard.com and select “Open an account” from the top menu. Choose “Traditional IRA” first, then repeat for “Roth IRA.” Vanguard’s application is straightforward. Both accounts need to exist before you can convert.
Step 2: Link Your Bank Account
Go to “My Profile” and select “Bank information.” Add your checking account using Vanguard’s online verification system (instant) or micro-deposits (2-3 days). Once verified, you can transfer money freely.
Annual Contribution Process (10 Minutes)
Step 3: Make Your Non-Deductible Contribution
Click “Buy & sell” in the top navigation, then “Contribute to IRA.” Select your Traditional IRA as the destination. Choose the contribution year (current or previous). Enter $7,000 or $8,000.
Transfer from your linked bank account. Vanguard shows an estimated arrival date, usually 3-5 business days for the first transfer, then 1-2 days for subsequent transfers.
Step 4: Let Cash Settle
Once the money appears in your Traditional IRA, wait one additional business day for it to fully settle. Vanguard won’t let you convert unsettled funds. You can check settlement status under “Balances and holdings.”
Step 5: Convert Using Vanguard’s Dedicated Button
This is where Vanguard shines. Go to your Traditional IRA account page and look for the “Convert to Roth IRA” button. It’s prominently displayed. Click it.
Vanguard asks three questions:
- Which Traditional IRA to convert from (if you have multiple)
- Which Roth IRA to convert to (if you have multiple)
- How much to convert (enter your full balance)
They’ll show you the exact conversion amount including any minimal growth (usually $7,001 or $7,002). Confirm the transaction. The conversion processes overnight.
Vanguard does NOT ask about tax withholding at this step. Good. You don’t want any withholding since this is an after-tax conversion.
Timeline Summary for Vanguard
- Day 1: Initiate contribution from bank to Traditional IRA
- Day 2-4: Cash arrives in Traditional IRA
- Day 5: Cash fully settled, ready to convert
- Day 5: Initiate Roth conversion using dedicated button
- Day 6: Conversion complete, money in Roth IRA
- Total elapsed time: 5-6 days
Vanguard is the easiest broker for first-time backdoor Roth conversions. The interface is clear and the dedicated convert button removes any guesswork.
Step-by-Step: Schwab Backdoor Roth IRA
Schwab offers the fastest backdoor Roth process if you have a Schwab checking account. You can complete everything in a single day.
One-Time Account Setup (15 Minutes)
Step 1: Open Traditional and Roth IRAs
Log into schwab.com and navigate to “Open an Account” under the Accounts menu. Select “Traditional IRA” first, complete the application (about 10 minutes), then repeat for “Roth IRA.” Both accounts need to exist simultaneously.
Step 2: Set Up Funding
If you have a Schwab checking account, linking is automatic. If not, add an external bank account under “Transfer & Payments.” Schwab offers instant verification for major banks or micro-deposit verification (2-3 days) for others.
Pro tip: If you don’t have a Schwab checking account and you plan to do backdoor Roth conversions annually, consider opening one. It’s free, has no minimums, and enables same-day conversions.
Annual Contribution Process (5-10 Minutes)
Step 3: Make Your Non-Deductible Contribution
Go to “Accounts” and select your Traditional IRA. Click “Transfer & Payments” then “Deposit from an External Account.” Select your funding source and enter $7,000 or $8,000. Choose the contribution year.
If transferring from Schwab checking, money is available instantly. If transferring from an external bank, it takes 1-3 business days.
Step 4: Initiate the Conversion
This is where Schwab’s process differs. You don’t convert through a menu option. You move money between accounts using their standard transfer system.
Go to “Transfer & Payments” again. Select “Transfer Funds Between Schwab Accounts.” Choose your Traditional IRA as the source and your Roth IRA as the destination. Enter your full Traditional IRA balance.
A pop-up appears asking if this is a Roth conversion. Select “Yes.” Schwab then asks about tax withholding. Select “0%” or “No withholding” because your contribution was already taxed.
Confirm the transfer. If you initiated this before 3 PM ET on a business day, the conversion completes the same day. After 3 PM, it processes the next business day.
Timeline Summary for Schwab
With Schwab Checking (Fastest):
- Day 1, 9 AM: Transfer from Schwab checking to Traditional IRA (instant)
- Day 1, 9:01 AM: Initiate Roth conversion
- Day 1, 5 PM: Conversion complete
- Total elapsed time: Same day
With External Bank:
- Day 1: Initiate transfer from external bank
- Day 2-3: Cash arrives in Traditional IRA
- Day 3: Initiate Roth conversion (before 3 PM)
- Day 3: Conversion complete (same day)
- Total elapsed time: 3 days
Schwab is the fastest option for time-sensitive conversions, especially if you’re doing the conversion late in December for the current tax year.
Which Broker Should You Choose?
All three execute backdoor Roth conversions perfectly well. Choose based on where you already have accounts or which features matter most to you:
- Choose Fidelity if: You already have 401(k) or brokerage accounts there and want everything in one place. Just remember the SPAXX workaround for the settlement period.
- Choose Vanguard if: You’re doing this for the first time and want the clearest, most obvious process. The dedicated convert button removes confusion.
- Choose Schwab if: You value speed and might need to do last-minute conversions. Same-day conversion with Schwab checking is unmatched.
You can also do backdoor Roth IRAs at other brokers like E*TRADE, TD Ameritrade, or Interactive Brokers. The process is similar but may have different quirks.
Understanding the Pro-Rata Rule
The pro-rata rule is the single biggest complication in backdoor Roth IRAs. Get this wrong and your tax-free strategy becomes a tax-generating nightmare.
Here’s the fundamental problem: you can’t just convert the after-tax money you just contributed and call it tax-free. The IRS requires you to treat all your traditional IRA money as one big pot. When you convert, you must include proportional amounts of pre-tax and after-tax funds.
How the Pro-Rata Rule Works
The pro-rata rule comes from IRC Section 408(d)(2). It says that IRA distributions and conversions must include proportional shares of pre-tax and after-tax funds across all your traditional, SEP, and SIMPLE IRAs combined.
The IRS aggregates these accounts:
- All traditional IRAs at any institution
- All SEP IRAs
- All SIMPLE IRAs
- All rollover IRAs
The IRS does NOT aggregate:
- Roth IRAs (calculated separately)
- 401(k), 403(b), or 457 plans
- Inherited IRAs (unless you’re a spouse who made them your own)
- Your spouse’s IRAs (each person calculated separately)
The calculation uses your December 31 balance of the conversion year, not your balance on the conversion date. This trips people up constantly.
The Pro-Rata Formula
Here’s the exact calculation the IRS requires on Form 8606:
Step 1: Calculate your non-taxable percentage
Non-taxable % = Total after-tax basis ÷ (Total IRA value on Dec 31 + Distributions/conversions during year)
Step 2: Apply that percentage to your conversion
Non-taxable amount = Conversion amount × Non-taxable %
Step 3: The rest is taxable
Taxable amount = Conversion amount – Non-taxable amount
Let’s work through real examples to see how devastating this can be.
Example 1: Clean Conversion (Ideal Scenario)
Profile: Sarah earns $185,000 as a single filer. She has no existing traditional, SEP, or SIMPLE IRA balances. She just started using the backdoor Roth strategy.
Action: Sarah contributes $7,000 non-deductible to a traditional IRA in January 2025. She immediately converts it to Roth. The account gains $3 before conversion.
December 31, 2025 balances:
- Traditional IRA: $0 (already converted)
- After-tax basis: $7,000
- Amount converted: $7,003
Pro-rata calculation:
- Non-taxable %: $7,000 ÷ ($0 + $7,003) = 99.96%
- Non-taxable amount: $7,003 × 99.96% = $7,000
- Taxable amount: $7,003 – $7,000 = $3
Result: Sarah owes ordinary income tax on $3. At a 24% tax bracket, that’s 72 cents. This is a perfect backdoor Roth. The tiny taxable amount is just growth that happened between contribution and conversion.
Example 2: Old 401(k) Rollover Creates Tax Bomb
Profile: John earns $220,000. Five years ago, he rolled his old employer’s 401(k) into a traditional IRA. That IRA now has $85,000 (all pre-tax). He wants to start doing backdoor Roth conversions.
Action: John contributes $7,000 non-deductible to his traditional IRA and immediately converts it.
December 31, 2025 balances:
- Traditional IRA: $85,000 (pre-tax rollover IRA)
- After-tax basis: $7,000 (new contribution)
- Amount converted: $7,000
Pro-rata calculation:
- Non-taxable %: $7,000 ÷ ($85,000 + $7,000) = 7.61%
- Non-taxable amount: $7,000 × 7.61% = $533
- Taxable amount: $7,000 – $533 = $6,467
Result: John owes ordinary income tax on $6,467. At a 32% tax bracket, that’s $2,069 in taxes. He thought he was making a tax-free Roth contribution. Instead, he paid $2,069 to convert $7,000. That’s a 29.5% effective tax rate on money he already paid taxes on.
The backdoor Roth completely failed. John would have been better off just investing in a taxable brokerage account.
Example 3: Self-Employed with SEP IRA (Common Problem)
Profile: Dr. Martinez is a self-employed dentist earning $280,000. She has a SEP IRA with $140,000 accumulated from years of contributions. She wants to do a backdoor Roth.
Action: She contributes $7,000 non-deductible to a traditional IRA and converts it immediately.
December 31, 2025 balances:
- SEP IRA: $140,000 (pre-tax)
- After-tax basis: $7,000
- Amount converted: $7,000
Pro-rata calculation:
- Non-taxable %: $7,000 ÷ ($140,000 + $7,000) = 4.76%
- Non-taxable amount: $7,000 × 4.76% = $333
- Taxable amount: $7,000 – $333 = $6,667
Result: Dr. Martinez owes tax on $6,667. At a 35% tax bracket (likely given her income), that’s $2,333 in taxes on a $7,000 conversion. She’s paying 33% tax on money that’s supposedly after-tax.
For self-employed individuals making large SEP IRA contributions, the backdoor Roth strategy often doesn’t work without additional planning.
Example 4: Accumulated Basis from Multiple Years
Profile: Emily has been making non-deductible traditional IRA contributions for years because she earned too much to deduct them but didn’t know about the backdoor Roth strategy. She has:
- Traditional IRA balance: $35,000 (mix of pre-tax and after-tax)
- Accumulated after-tax basis from previous years: $18,000
- She now wants to convert $7,000
December 31, 2025 balances:
- Traditional IRA: $35,000
- After-tax basis: $25,000 ($18,000 old + $7,000 new)
- Amount converted: $7,000
Pro-rata calculation:
- Non-taxable %: $25,000 ÷ ($35,000 + $7,000) = 59.52%
- Non-taxable amount: $7,000 × 59.52% = $4,166
- Taxable amount: $7,000 – $4,166 = $2,834
Result: Emily owes tax on $2,834. Better than John’s situation, but still 40.5% of her conversion is taxable even though she’s converting supposedly after-tax money.
The lesson: accumulated basis helps, but unless you convert everything at once, you’re still paying significant taxes.
Why December 31 Balance Matters
The pro-rata calculation uses your December 31 balance, not your conversion date balance. This creates planning opportunities and pitfalls.
Pitfall example: You do a backdoor Roth in January 2025 with no other IRA balances. Clean conversion, zero taxes. Then in November 2025, you roll over an old 401(k) into a traditional IRA. The IRS recalculates your January conversion using your December 31 balance. Your previously clean conversion is now partially taxable.
Planning opportunity: If you have traditional IRA balances and roll them into a 401(k) in December, you can do a backdoor Roth in the same year. As long as your December 31 balance is zero (or contains only after-tax basis), your conversion is clean.
How to Avoid the Pro-Rata Tax Trap
If you have existing traditional IRA balances, you have five strategies to work around the pro-rata rule.
Strategy 1: Reverse Rollover to 401(k) (Best Option)
This is the most common and most effective solution. Roll your pre-tax IRA money INTO your current employer’s 401(k) plan before doing the backdoor Roth.
How it works: IRC Section 408(d)(3)(A)(ii) allows you to roll only pre-tax IRA funds into a 401(k). After-tax basis must stay in the IRA. Once the pre-tax money is in your 401(k), it’s no longer counted in the IRA aggregation. You’re left with only after-tax basis in your IRA, making your conversion 100% tax-free.
Requirements:
- Your employer’s 401(k) must accept incoming rollovers (check with HR)
- The rollover must be complete by December 31 of the conversion year
- It must be a direct rollover, not a distribution and recontribution
Step-by-step process:
- Contact your 401(k) plan administrator and ask if they accept incoming IRA rollovers
- If yes, get their rollover paperwork and instructions
- Contact your IRA custodian and request a direct rollover to your 401(k)
- The IRA custodian sends your pre-tax balance directly to the 401(k)
- Any after-tax basis automatically stays in your IRA
- Once the rollover completes, do your backdoor Roth conversion
Example: Jeremy has $200,000 in a traditional IRA from an old 401(k) rollover. He wants to start doing backdoor Roth conversions. He rolls the entire $200,000 into his current employer’s 401(k). Now his IRA balance is zero. He contributes $7,000 non-deductible, converts it immediately, and pays zero tax on the conversion.
Limitations: You cannot do a reverse rollover with SEP or SIMPLE IRAs while you’re still actively contributing to them through self-employment or a current employer. You have to wait until those contributions stop. Also, not all 401(k) plans accept incoming rollovers. If yours doesn’t, try strategies 2-5.
Strategy 2: Convert Everything in One Year (Nuclear Option)
If you can’t roll into a 401(k), consider converting your entire traditional IRA to Roth in one transaction. You’ll pay taxes on all the pre-tax money, but you’ll eliminate the pro-rata problem permanently.
When this makes sense:
- Your traditional IRA balance is relatively small ($10,000-$30,000)
- You have a low-income year (sabbatical, business loss, maternity leave)
- You want to get the tax hit over with and have Roth benefits going forward
- You’re retiring soon and can control the timing
Example: Sarah has a $25,000 traditional IRA. She takes a six-month sabbatical and earns only $40,000 that year instead of her normal $180,000. She converts the entire $25,000 to Roth. Her total income is $65,000, keeping her in the 22% federal bracket. She pays about $5,500 in federal tax on the conversion but eliminates the pro-rata problem forever.
Warning: If your IRA balance is large ($100,000+), converting everything at once creates a massive tax bill. Run the numbers carefully with a tax professional.
Strategy 3: Never Create Pre-Tax IRAs (Prevention)
If you’re young and haven’t accumulated IRA balances yet, avoid creating pre-tax IRAs altogether.
Rules to follow:
- When you change jobs, roll your old 401(k) directly to your new employer’s 401(k)
- Never roll a 401(k) into a traditional IRA
- Only make non-deductible IRA contributions if you’re above income limits
- Keep all retirement savings in 401(k) plans, not IRAs
This requires planning ahead, but it keeps your backdoor Roth strategy clean forever.
Strategy 4: Solo 401(k) for Self-Employed (SEP IRA Alternative)
If you’re self-employed with a SEP IRA, consider establishing a Solo 401(k) instead. You can then roll your SEP IRA into the Solo 401(k), clearing the pro-rata problem.
Requirements:
- You must have self-employment income (Schedule C, consulting, side business)
- You cannot have full-time employees (except your spouse)
- The Solo 401(k) must be established by December 31 of the year you want to contribute
Benefits beyond clearing pro-rata:
- Higher contribution limits than SEP IRA ($70,000 vs $70,000, but Solo 401(k) allows Roth contributions)
- Option to include a Roth component
- Possible to do mega backdoor Roth within the Solo 401(k)
- Loan provisions (you can borrow from your own Solo 401(k))
Read our complete Solo 401(k) guide for setup instructions and provider comparisons.
Strategy 5: Live With It (Sometimes Okay)
In some situations, doing a partially taxable backdoor Roth still makes sense.
When to consider this:
- Your traditional IRA balance is small relative to your contribution ($10,000 IRA, $7,000 contribution)
- You have significant accumulated after-tax basis that improves your pro-rata percentage
- You value Roth benefits enough to pay some tax on conversion
- You’re planning to convert everything over several years anyway
Example: Michael has a $15,000 traditional IRA with $6,000 of after-tax basis. He makes a $7,000 non-deductible contribution and converts. His calculation shows 60% tax-free, 40% taxable. He pays tax on $2,800. It’s not ideal, but he’s still getting $4,200 into a Roth tax-free plus having the $7,000 grow tax-free going forward.
Run the pro-rata calculator to see if your situation makes this acceptable.
Can’t You Just Open an IRA at a Different Broker?
No. This doesn’t work.
The IRS aggregates all traditional IRAs regardless of where they’re held. You could have one IRA at Fidelity, another at Vanguard, and a third at Schwab. The IRS treats them as a single pot for pro-rata calculations.
The aggregation crosses institutions, crosses states, crosses everything. There’s no way to hide from it.
Filing Form 8606: Line-by-Line Guide
Form 8606 is mandatory for backdoor Roth IRAs. Skip it and the IRS assumes your entire conversion is taxable. File it incorrectly and you risk audits or double taxation.
You file Form 8606 with your annual tax return (Form 1040). If you’re married and both spouses do backdoor Roth conversions, each spouse files a separate Form 8606.
When to File Form 8606
File Form 8606 for any year in which you:
- Make non-deductible traditional IRA contributions
- Convert traditional, SEP, or SIMPLE IRA money to Roth
- Take distributions from traditional IRAs with basis
- Take distributions from Roth IRAs (in some cases)
For a backdoor Roth IRA, you’re doing both a non-deductible contribution and a conversion in the same year, so you complete multiple parts of Form 8606.
Filing deadline: April 15 following the tax year, or October 15 if you file for an extension. If you converted in 2025, file Form 8606 with your 2025 tax return by April 15, 2026.
Line-by-Line Instructions for Backdoor Roth
Let’s walk through Form 8606 for a clean backdoor Roth scenario where you have no other IRA balances.
Part I: Nondeductible Contributions to Traditional IRAs
Line 1: Enter your nondeductible contribution for the tax year. If you contributed $7,000 in January 2025, enter $7,000 here.
Line 2: Enter your total basis in traditional IRAs from previous years. This comes from Line 14 of last year’s Form 8606. If this is your first backdoor Roth, enter $0.
Line 3: Add Lines 1 and 2. This is your total basis before considering this year’s distributions or conversions.
Lines 4-5: Skip these if you didn’t take any distributions (other than conversions) from traditional IRAs this year.
Line 6: Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, plus any distributions or conversions during the year. For a clean backdoor Roth with no other balances, this equals your conversion amount (around $7,000).
Line 7: Skip this line in most backdoor Roth situations.
Line 8: Divide Line 3 by Line 6. This is your non-taxable percentage. For a clean conversion, this should be very close to 1.000 (100%).
Line 9: Multiply Line 8 by Line 5. For most backdoor Roths where you didn’t take any other distributions, this is $0.
Line 10: Multiply Line 8 by Line 4 if applicable. Usually $0 for backdoor Roths.
Line 11: Add Lines 9 and 10. This is the non-taxable portion of any distributions you took.
Line 12: Subtract Line 11 from Line 3. This is your remaining basis after distributions.
Line 13: Skip if you converted everything (which is typical for backdoor Roth).
Line 14: This is your basis for next year. For a clean backdoor Roth conversion where you converted everything, this should be $0. You’re carrying no basis forward.
Line 15a: Enter the amount you converted to Roth IRA. This goes on Line 15a, not Line 5 (common mistake).
Line 15b: Skip unless you recharacterized a conversion (rare).
Line 15c: Usually the same as Line 15a.
Part II: 2025 Conversions From Traditional, SEP, or SIMPLE IRAs to Roth IRAs
Line 16: Enter the amount from Line 15c (your conversion amount).
Line 17: Enter the portion that’s non-taxable. This is Line 8 (your non-taxable percentage) multiplied by Line 16 (your conversion amount). For a clean backdoor Roth, this should equal almost your entire conversion.
Line 18: Subtract Line 17 from Line 16. This is the taxable amount of your conversion. This number flows to Form 1040, Line 4b as taxable IRA distributions. For a clean backdoor Roth with no other balances, this should be $0 or a few dollars.
Real Example: Sarah’s Clean Conversion
Sarah contributed $7,000 non-deductible in January 2025 and converted $7,002 to Roth (the $2 is growth). She has no other IRA balances.
Part I:
- Line 1: $7,000 (her contribution)
- Line 2: $0 (first backdoor Roth)
- Line 3: $7,000
- Line 6: $7,002 (December 31 balance plus conversions)
- Line 8: $7,000 ÷ $7,002 = 0.9997 (99.97%)
- Line 14: $0 (converted everything)
- Line 15a: $7,002
Part II:
- Line 16: $7,002
- Line 17: $7,002 × 0.9997 = $7,000
- Line 18: $7,002 – $7,000 = $2 (taxable)
Sarah owes ordinary income tax on $2. At a 24% bracket, that’s 48 cents.
Real Example: John’s Problematic Conversion
John contributed $7,000 non-deductible but has an $85,000 traditional IRA from an old 401(k) rollover. He converted $7,000 anyway.
Part I:
- Line 1: $7,000
- Line 2: $0
- Line 3: $7,000
- Line 6: $92,000 ($85,000 remaining + $7,000 converted)
- Line 8: $7,000 ÷ $92,000 = 0.0761 (7.61%)
- Line 14: $6,467 (basis remaining after conversion)
- Line 15a: $7,000
Part II:
- Line 16: $7,000
- Line 17: $7,000 × 0.0761 = $533
- Line 18: $7,000 – $533 = $6,467 (taxable)
John owes ordinary income tax on $6,467. At a 32% bracket, that’s $2,069 in taxes.
Common Form 8606 Mistakes
Mistake 1: Not filing at all. Without Form 8606, the IRS has no record of your after-tax basis. They assume your entire conversion is taxable. If you converted $7,000, they tax you on the full $7,000 instead of just the growth.
Mistake 2: Putting the conversion on Line 5 instead of Line 15a. Line 5 is for regular distributions. Line 15a is specifically for Roth conversions. Using the wrong line creates calculation errors.
Mistake 3: Using conversion date balance instead of December 31. Line 6 requires your December 31 balance plus distributions during the year. People often use their conversion date balance, which is wrong.
Mistake 4: Forgetting spouse’s separate form. Each spouse files their own Form 8606. If both spouses do backdoor Roths, you need two forms attached to your joint return.
Mistake 5: Not carrying basis forward. If you don’t convert everything, Line 14 shows remaining basis. You must include this on next year’s Form 8606 Line 2. Lose track of this and you lose your basis record.
Do You Need to Attach Form 8606 or Can You E-File?
Form 8606 can be e-filed with your tax return. All major tax software (TurboTax, H&R Block, FreeTaxUSA) handles Form 8606. You don’t need to mail anything separately.
The software walks you through the questions. You tell it you made a non-deductible IRA contribution and converted to Roth. It generates Form 8606 automatically.
Keep copies of all Form 8606s permanently. The IRS can question your basis calculation years later. Your Form 8606 history is your proof.
Timing Your Conversion for Maximum Tax Efficiency
One of the most debated questions in backdoor Roth IRAs: how long should you wait between contribution and conversion?
The short answer: not long at all.
There’s No Mandatory Waiting Period
Despite persistent internet rumors, the IRS does not require a waiting period between contribution and conversion. You can contribute and convert the same day.
The “step transaction doctrine” concern gets mentioned frequently. This is a legal principle where the IRS can collapse multiple steps into one transaction if they’re pre-planned. Some people worry the IRS will treat same-day backdoor Roths as direct Roth contributions and disallow them.
But the IRS has never challenged this. In 2018, the IRS explicitly acknowledged backdoor Roth IRAs in Publication 590-A, writing: “If you make a contribution to a traditional IRA and later convert it to a Roth IRA, the contribution is treated as having been made to the Roth IRA.”
That’s official IRS guidance blessing the strategy. They know exactly what taxpayers are doing.
Why You Should Convert Quickly
Converting immediately after contribution minimizes taxable growth. Remember, any growth between contribution and conversion is taxable.
Example 1: Immediate conversion
- Contribute $7,000 on Monday
- Account gains $3 by Friday
- Convert $7,003 on Friday
- Taxable amount: $3
Example 2: Waiting one month
- Contribute $7,000 on January 1
- Account grows to $7,245 by February 1 (3.5% market gain)
- Convert $7,245 on February 1
- Taxable amount: $245
By waiting a month during a good market period, you created $245 of taxable income. At a 32% tax bracket, that’s $78 in extra taxes for no benefit.
The ideal timeline: contribute on Day 1, convert as soon as the cash settles (Day 2-5 depending on broker).
Best Times of Year to Execute Backdoor Roth
January through early April: Optimal for most people. You can make contributions for the previous tax year (until April 15) or the current year. You have the full year to let the money grow in your Roth IRA.
December: Fine but creates time pressure. If you’re doing the backdoor Roth for the current tax year and you have other IRA balances you need to roll into a 401(k) first, December gets tight. Remember, the pro-rata calculation uses December 31 balances. Everything must be completed by year-end.
Mid-year: Perfectly acceptable. There’s no advantage to timing the market by contributing at specific times. As soon as you have the cash available, contribute and convert. The earlier your money is in the Roth IRA, the longer it grows tax-free.
Contribution Year Considerations
You can make IRA contributions for a given tax year from January 1 of that year through April 15 of the following year. This creates flexibility.
Example: It’s March 2026. You can make a $7,000 contribution designated for tax year 2025 (assuming you haven’t already maxed it out) or tax year 2026.
Why does this matter? If you’re doing a backdoor Roth in March 2026 and designating it for 2025, you need to consider whether you had any IRA balances on December 31, 2025. If you rolled a 401(k) to an IRA in January 2026, it doesn’t affect your 2025 backdoor Roth because the pro-rata calculation uses December 31, 2025 balances.
This is advanced planning territory. Most people simply contribute for the current year and don’t worry about these nuances.
What If the Market Drops Between Contribution and Conversion?
Occasionally the market drops after you contribute but before you convert. Your $7,000 contribution is now worth $6,950. Should you wait for it to recover?
No. Convert anyway.
Here’s why: that $50 loss occurred in your traditional IRA where you get no tax benefit from losses. If you convert the $6,950 to Roth, you’ve moved money into a tax-free environment. The $50 loss is already gone. Waiting doesn’t help.
Plus, you’ll have a $50 excess basis that carries forward on your Form 8606. You contributed $7,000 but only converted $6,950. The $50 difference stays as basis for future conversions.
Can You Do Multiple Backdoor Roths in One Year?
No. You’re limited by the annual IRA contribution limit ($7,000 or $8,000). You can’t contribute $7,000 in January, convert it, then contribute another $7,000 in June and convert that too.
The IRS limits total IRA contributions (deductible or non-deductible, traditional or Roth, across all accounts combined) to $7,000 per year per person under age 50.
However, you can contribute for one year in January and for the next year in December of the same calendar year, as long as you’re properly designating contribution years.
Common Backdoor Roth Mistakes to Avoid
These mistakes turn up repeatedly. Avoid them and your backdoor Roth will execute smoothly.
Mistake 1: Not Checking Pro-Rata Rules First
The biggest mistake is starting a backdoor Roth without understanding your pro-rata situation. You contribute $7,000, convert it, and then discover at tax time that $6,000 is taxable because you had a forgotten $80,000 IRA.
Solution: Use the calculator in this article before you contribute. Know your tax impact upfront. If you have existing IRA balances, solve that problem first using the strategies in the “How to Avoid the Pro-Rata Tax Trap” section.
Mistake 2: Rolling 401(k) to IRA the Same Year
You do a clean backdoor Roth in January with zero IRA balances. In November, you leave your job and roll your 401(k) into an IRA. The December 31 balance now includes that 401(k) rollover, destroying your January conversion’s tax-free status.
Solution: Never roll a 401(k) to an IRA if you’re doing backdoor Roth conversions. Roll old 401(k)s to new employer 401(k)s instead. Or if you must roll to an IRA, don’t do backdoor Roths that year.
Mistake 3: Forgetting About SEP or SIMPLE IRAs
Self-employed people often have SEP IRAs they’ve forgotten about. You think you have no IRA balances, but that SEP from your side consulting business counts.
Solution: Check every brokerage account you have. Look for any account with “IRA” in the name. SEP-IRA, SIMPLE IRA, Traditional IRA, Rollover IRA all count. Only Roth IRAs and 401(k)-type plans don’t count.
Mistake 4: Withholding Taxes on the Conversion
When you convert, the broker asks if you want to withhold taxes. Some people select 10% or 20% withholding to “be safe.” This is wrong for backdoor Roths.
If you withhold taxes, you’re reducing your Roth IRA balance unnecessarily. The contribution was already taxed (it was non-deductible). There’s nothing to withhold for.
Example: You convert $7,000 but select 10% withholding. $700 goes to the IRS and only $6,300 reaches your Roth IRA. You just permanently lost $700 of Roth IRA space.
Solution: Always select zero withholding or “no withholding” when converting.
Mistake 5: Not Filing Form 8606
Without Form 8606, the IRS assumes your entire conversion is taxable. Your tax software won’t automatically generate this form unless you explicitly tell it you made a non-deductible contribution.
Solution: When preparing your taxes, specifically indicate you made a non-deductible traditional IRA contribution and converted to Roth. This triggers Form 8606 generation.
Mistake 6: Contributing More Than You Can
You can’t contribute more than your earned income. If you earned $5,000 in wages but try to contribute $7,000, the excess is an illegal contribution.
Solution: Make sure you have at least $7,000 (or $8,000) in earned income (W-2 wages, self-employment income, or spousal income if filing jointly) before contributing.
Mistake 7: Doing Backdoor Roth When Still Eligible for Direct Roth
You earn $140,000 as a single filer. You read about backdoor Roths and do one. But you could have just contributed directly to a Roth IRA because you’re under the $150,000 phase-out threshold.
Solution: Check the income limits. If you’re eligible for direct Roth contributions, use that simpler method. Backdoor Roths are only necessary above the income limits.
Mistake 8: Not Keeping Contribution Records
Years later, the IRS questions your basis. You can’t find your old Form 8606 copies. You have no proof of non-deductible contributions.
Solution: Keep every Form 8606 permanently. These forms track your basis across decades. Store them digitally in at least two places (cloud storage plus local backup).
Mistake 9: Contributing in December for Current Year with Existing IRA Balance
You have a $50,000 traditional IRA. In December, you contribute $7,000 non-deductible and convert it. The December 31 balance includes the full $50,000 plus your contribution, making the conversion mostly taxable.
Solution: If you have existing IRA balances and want to do a backdoor Roth, solve the pro-rata problem first (usually by rolling into a 401(k)). Do that in early December, then do the backdoor Roth in late December. The December 31 snapshot will show no pre-tax IRA balances.
Mistake 10: Spouse Using Wrong Filing Status
You’re married filing separately (MFS). The Roth IRA income limits for MFS are $0-$10,000 if you lived with your spouse at any point during the year. This is specifically designed to prevent couples from using MFS to circumvent income limits.
Some people think they can do a backdoor Roth under MFS. They can, but the non-deductible contribution part gets complicated because traditional IRA deduction limits are also severely restricted under MFS.
Solution: If you’re married, file jointly unless you have a specific legal or financial reason not to. The backdoor Roth works cleanly under married filing jointly.
Backdoor Roth vs Mega Backdoor Roth
The backdoor Roth IRA and mega backdoor Roth IRA sound similar but are completely different strategies.
Backdoor Roth IRA (What This Article Covers)
- Contribution limit: $7,000-$8,000 per year
- Availability: Anyone with earned income can do this
- Requirements: Just need IRA accounts at any broker
- Complexity: Moderate (need to understand pro-rata rule)
- Process: Contribute to traditional IRA, convert to Roth IRA
Mega Backdoor Roth IRA
- Contribution limit: Up to $46,500 per year (2025)
- Availability: Only if your 401(k) plan offers it (rare)
- Requirements: Employer 401(k) must allow after-tax contributions and in-service distributions or in-plan conversions
- Complexity: High (requires specific 401(k) plan features)
- Process: Make after-tax 401(k) contributions beyond the $23,500 employee limit, then convert those to Roth
Can You Do Both?
Yes. These strategies are completely separate. You can contribute $7,000 through a backdoor Roth IRA and up to $46,500 through a mega backdoor Roth if your 401(k) plan allows it.
Combined, that’s $53,500 into Roth accounts in one year for a person under 50. Double that if you’re married and both have access to mega backdoor Roth plans.
Read our complete mega backdoor Roth guide to see if your 401(k) plan qualifies and how to execute it.
Which Should You Do First?
Priority order for high earners:
- Capture full 401(k) match (free money)
- Max out HSA if eligible ($4,150/$8,300) – see our HSA investment strategy guide
- Max out 401(k) employee contributions ($23,500)
- Backdoor Roth IRA ($7,000-$8,000)
- Mega backdoor Roth if available ($46,500)
- Taxable brokerage account (no limits)
This order maximizes tax-advantaged space and captures employer matches before moving to unlimited taxable accounts.
Frequently Asked Questions
Is the backdoor Roth IRA legal?
Yes. The backdoor Roth IRA is completely legal and explicitly acknowledged by the IRS in Publication 590-A. Congress removed income limits on Roth conversions in 2010, intentionally creating this strategy. In 2025, Congress explicitly preserved it in the One Big Beautiful Bill Act, rejecting proposals to close it. You report everything on Form 8606. There’s nothing hidden or questionable about it.
Do I need to wait between contribution and conversion?
No. There’s no mandatory waiting period. Despite internet rumors about the “step transaction doctrine,” the IRS has never challenged same-day or next-day conversions. In fact, converting quickly is better because it minimizes taxable growth between contribution and conversion. Most people contribute and convert within the same week.
What if I have money in a 401(k) from my current employer?
401(k) plans don’t count in the pro-rata calculation. Only traditional IRAs, SEP IRAs, and SIMPLE IRAs count. You can have $500,000 in a 401(k) and still do a clean backdoor Roth IRA with zero tax consequences. The IRA aggregation rule specifically excludes employer retirement plans.
I have a traditional IRA from an old 401(k) rollover. Can I still do a backdoor Roth?
Yes, but the pro-rata rule will make most of your conversion taxable. Your best option is to roll that traditional IRA back into your current employer’s 401(k) plan (if they accept incoming rollovers). Once the pre-tax money is in the 401(k), your backdoor Roth works cleanly. Alternatively, you could convert the entire traditional IRA to Roth in one year, pay the taxes, and then do clean backdoor Roths going forward.
Can I do a backdoor Roth if I’m self-employed with a SEP IRA?
Technically yes, but the pro-rata rule will usually make it not worthwhile. SEP IRAs count in the IRA aggregation calculation. If you have a large SEP IRA balance, most of your backdoor Roth conversion will be taxable. Your better option is to establish a Solo 401(k) instead of using a SEP IRA, then roll the SEP into the Solo 401(k). This clears the pro-rata problem and allows clean backdoor Roth conversions. See our Solo 401(k) guide for details.
What happens if I forget to file Form 8606?
If you don’t file Form 8606, the IRS assumes your entire conversion is taxable. They have no record of your after-tax basis. You could end up paying taxes twice on the same money. The penalty for not filing Form 8606 is $50 per failure, but the bigger problem is losing your basis documentation. If you forgot to file, file an amended return with Form 8606 attached as soon as possible.
Can my spouse and I each do a backdoor Roth?
Yes. If you’re married, each spouse can do their own backdoor Roth IRA. That’s $14,000 per year combined ($16,000 if both are 50+). Each spouse needs their own traditional IRA and Roth IRA. Each spouse files their own Form 8606. IRAs are individually owned, not jointly owned, so each person’s pro-rata calculation is done separately.
Should I convert in December or January?
Either works fine. The advantage of January is you can designate your contribution for the previous tax year (until April 15), giving you flexibility. The advantage of December is you get the money into the Roth IRA sooner for tax-free growth. From a pure tax perspective, timing within the year doesn’t matter. Just avoid contributing in December and then rolling a 401(k) to an IRA the same year, which would trigger pro-rata issues.
What should I invest in after the conversion?
That depends on your overall investment strategy and time horizon. Most people invest backdoor Roth IRA money in low-cost index funds like total stock market funds or target-date funds. Roth IRAs are ideal for high-growth investments because all gains are tax-free. Some investors put their most aggressive holdings in Roth IRAs. Read our index fund comparison guide for investment options.
Will Congress eliminate the backdoor Roth loophole?
Proposals to eliminate backdoor Roth IRAs have been introduced multiple times but have never passed. Most recently, in 2025, Congress explicitly preserved the strategy in the One Big Beautiful Bill Act, rejecting attempts to close it. While future legislation could theoretically eliminate it, there’s no indication this will happen. The strategy has existed since 2010 and has bipartisan acceptance because it affects a relatively small number of high earners and doesn’t create significant revenue loss for the government.
Final Thoughts: Is the Backdoor Roth Right for You?
The backdoor Roth IRA is one of the most valuable tax strategies available to high earners. It opens Roth IRA access regardless of income, letting you build decades of tax-free growth.
But it’s not automatic. The pro-rata rule can turn the strategy into a tax liability if you’re not careful. And Form 8606 filing is mandatory, not optional.
Here’s the test: if you ran the pro-rata calculator and it showed less than 10% of your conversion is taxable, the backdoor Roth works beautifully for you. Execute the steps at your broker of choice, file Form 8606 with your taxes, and repeat annually.
If the calculator showed 50%+ of your conversion is taxable, pause. Solve the pro-rata problem first by rolling traditional IRA balances into a 401(k), converting everything to Roth in one year, or setting up a Solo 401(k) if you’re self-employed. Then do clean backdoor Roths going forward.
The backdoor Roth isn’t going away. Congress has had 15 years to close it and keeps choosing not to. Take advantage of it while continuing to max out your other tax-advantaged accounts like your 401(k) and HSA.
For more retirement planning strategies, read our Roth IRA vs Traditional IRA guide to understand when Roth benefits outweigh traditional tax deductions, or explore our $1,000 investing guide if you’re just getting started.
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