Backdoor Roth IRA: How It Works, Step by Step

A backdoor Roth IRA is a two-step move: you make a nondeductible contribution to a traditional IRA, then convert that money to a Roth IRA. It's how people whose income is above the Roth IRA limits can still get money into a Roth, because the IRS limits who can contribute to a Roth directly but not who can convert.

Done cleanly, it's mostly paperwork. Done without checking your other IRA balances, it can produce a tax bill you didn't expect. This guide walks through the steps as of 2026, the pro-rata rule that catches most people, and how to report it. It's education, not tax advice, and a tax professional is worth consulting before your first one.

What is a backdoor Roth IRA?

A backdoor Roth IRA isn't a special account; it's a nickname for funding an ordinary Roth IRA through a conversion. The IRS doesn't use the term, but both steps are allowed under its rules.

It relies on two facts:

1. Anyone with taxable compensation can contribute to a traditional IRA, whatever their income. If your income is too high to deduct it, the contribution is simply nondeductible.
2. Conversions have no income limit. The IRS removed the income and filing-status conditions on Roth conversions starting January 1, 2010.

The result is a Roth IRA that works like any other: qualified withdrawals are tax-free and there are no required minimum distributions for you as the owner. If you're still deciding between account types, our comparison of the difference between Roth and traditional IRAs covers that first, and our investing for beginners guide shows where retirement accounts fit in a wider plan.

Who might need a backdoor Roth in 2026?

Only people whose modified AGI is too high for a full direct Roth IRA contribution. If you're under the limits, contribute to a Roth IRA directly; the backdoor adds steps without adding anything.

The amount you can move this way is the normal IRA limit: $7,500 for 2026, or $8,600 if you're 50 or older, shared across all your IRAs and capped at your taxable compensation.

Before using a backdoor Roth, most people would first take any employer match in a workplace plan. A Roth 401(k), if your employer offers one, has no income limit at all. Our guide on how to invest for retirement lays out a common order for filling accounts.

How does a backdoor Roth work, step by step?

You contribute to a traditional IRA without deducting it, convert it to a Roth, and report both on Form 8606. Here's the sequence.

Step 1: Check your other IRA balances first

Add up the pre-tax money in every traditional IRA, SEP IRA and SIMPLE IRA you own. If the total is zero, the backdoor is usually simple. If it isn't, read the pro-rata section below before going further.

Step 2: Make a nondeductible traditional IRA contribution

Open a traditional IRA (many brokers let you open it alongside the Roth) and contribute up to the limit. Contributions for a tax year can be made until your filing deadline, not including extensions. Don't claim a deduction for it.

Step 3: Convert to the Roth IRA

Ask your provider to convert the traditional IRA balance to your Roth IRA. Most do this as an internal transfer between your own accounts. Many people keep the money in cash until the conversion, because any growth before converting is taxable.

Step 4: Report it on Form 8606

File Form 8606 with your return. It records your nondeductible contribution (your "basis") and works out how much of the conversion is taxable. Your provider will also send Form 1099-R for the conversion.

Step 5: Invest inside the Roth

Converted money arrives as cash or as the same holdings. Choose investments, or it won't grow the way you intended. Returns are not guaranteed, and the value can fall.

What is the pro-rata rule, and why does it matter?

The pro-rata rule means you can't convert only your after-tax dollars if you also hold pre-tax IRA money; every conversion is treated as a mix of both. This is the most common way a backdoor Roth goes wrong.

On Form 8606, the taxable share of a conversion is based on the value of all your traditional IRAs as of December 31 of the conversion year, plus outstanding rollovers. The instructions say "traditional IRAs" includes traditional SEP IRAs and traditional SIMPLE IRAs.

Example (hypothetical): you have $67,500 of pre-tax money in an old rollover IRA, then make a $7,500 nondeductible contribution and convert $7,500.

Two details make this sharper:

• The December 31 date matters, not the conversion date. Rolling a big 401(k) into a traditional IRA later in the same year can pull a conversion made in February into the calculation.
• 401(k) balances don't count. Only IRAs are included. That's why some people with pre-tax IRA money roll it into their current employer's 401(k) first, if the plan accepts incoming rollovers. The IRS rollover chart allows traditional IRA money to move into a qualified plan, but each plan sets its own rules, so ask your plan administrator.

If clearing your pre-tax IRA money isn't possible, the backdoor may still be worth doing, but you'll owe tax on part of every conversion.

How is a backdoor Roth reported on your taxes?

Through Form 8606, filed with your federal return for each year you make a nondeductible contribution or a conversion. The form keeps a running record of your basis so that money isn't taxed twice.

What to expect:

• Form 1099-R from your provider, showing the conversion as a distribution from the traditional IRA.
• Form 5498 from your provider, showing the contributions and conversion received.
• Form 8606, where you report the nondeductible contribution and the conversion.

Per the Form 8606 instructions, failing to file it when you report a nondeductible contribution can cost a $50 penalty, and overstating nondeductible contributions can cost $100, unless you show reasonable cause. Keep copies of every Form 8606 you file; you'll need the basis figure for years.

If your contribution earned anything before you converted, those earnings are taxable in the conversion year. Tax software usually handles this, but check that it picked up your basis.

What are the risks and common mistakes?

Most backdoor Roth problems come from timing, forgotten accounts and paperwork, not from the strategy itself. Watch for these:

• Forgetting an old IRA. A forgotten SEP or rollover IRA triggers the pro-rata rule.
• No undo button. Since 2018, conversions can't be recharacterized back to a traditional IRA.
• The conversion clock. Each conversion has its own five-year period for the 10% additional tax if you're under 59½ and withdraw the converted amount. Our explainer on the Roth IRA 5-year rule covers it.
• Deducting by mistake. If you're eligible for a deduction and take it, the money is pre-tax and the conversion becomes taxable.
• Excess contributions. The shared limit still applies; over-contributing costs 6% a year until fixed.
• State taxes and law changes. Rules can change, and state treatment varies. Check before each year's conversion.

Be wary of anyone who pitches a backdoor Roth together with an expensive product, such as a high-fee annuity or a precious-metals IRA. Our guide on how to avoid investment scams lists the red flags.

What is a mega backdoor Roth?

A mega backdoor Roth uses after-tax contributions to a 401(k), not an IRA, and then moves that money to a Roth. It only works if your employer's plan allows after-tax contributions and lets you move them out or convert them in the plan.

The IRS confirms that after-tax amounts in a plan can be rolled to a Roth IRA separately from pre-tax amounts, for example through a full distribution split between a traditional IRA and a Roth IRA. Plan rules vary widely, so the first step is asking your plan administrator what's allowed. This is an advanced move, and it's worth professional advice.

Outside the US there's no direct equivalent. Accounts such as the UK ISA, Canada's TFSA or Australian super have their own contribution rules, so check your own government's guidance rather than borrowing US strategies.

Next steps

• Get the full beginner roadmap in our step-by-step guide to investing for beginners.
• Moving an old workplace plan? Read can you roll a 401(k) into a Roth IRA before you touch it, since it can affect the pro-rata math.
• New to Roth accounts? Start with Roth IRA for beginners.
• Want to grow the income you invest? See our guide to making money online.