How to Do a Backdoor Roth Conversion: Caps, Steps and Examples

A backdoor Roth IRA allows high-income earners to move money into a Roth IRA. It is a simple two-step strategy that works because, while the IRS sets income limits on direct Roth IRA contributions, it sets no income limits on Roth IRA conversions. Anyone whose modified adjusted gross income (MAGI) is too high can still gain access to Roth-style tax treatment this way.

A financial advisor can help you determine whether your income level and tax situation make a backdoor Roth IRA the right move for your retirement savings.

Who Needs a Backdoor Roth and Why

For 2026, the Roth IRA phases out between $153,000 and $168,000 for single filers and heads of household. For married couples filing jointly it phases out between $242,000 and $252,000. ¹

Above those upper thresholds, direct Roth contributions are not permitted at all. The backdoor Roth strategy exists precisely because these income caps do not extend to conversions. Roth accounts remain valuable enough to justify the extra steps. They offer tax-free growth, tax-free qualified withdrawals in retirement and no required minimum distributions (RMDs) during the original owner’s lifetime. Those features make Roth assets particularly useful for managing taxes later in retirement and for passing wealth to heirs.

The strategy tends to benefit high-income earners with a long time horizon before retirement. It also helps investors who expect to be in the same or a higher tax bracket in retirement. Those who want to reduce future RMD obligations from traditional retirement accounts use it as well. A nonworking spouse can even use the strategy based on the working spouse’s earned income. This can double the household’s annual Roth contribution capacity.

While widely used by tax professionals, the IRS has not issued formal explicit approval of the backdoor Roth. Most practitioners consider it permissible under current law. However, the absence of a definitive ruling give practitioners good reason that careful documentation and execution.

Backdoor Roth IRA Contribution Caps and 2026 Limits

The backdoor Roth strategy is constrained by the same annual IRA contribution limits that apply to direct contributions. For 2026, the IRA contribution limit is $7,500, or $8,600 for those age 50 and older. ² These figures represent the maximum amount that can be contributed to a traditional IRA, nondeductibly, before converting to a Roth.

Because the contribution is nondeductible, no upfront tax deduction is taken. This is what creates the after-tax basis in the traditional IRA, which then becomes the foundation for a largely tax-free conversion.

The spousal IRA rule extends this further. A nonworking spouse can contribute based on the working spouse’s earned income, allowing a married couple to effectively double the household’s annual contribution capacity through two separate backdoor Roth conversions.

For investors with access to a workplace plan, a related strategy known as the mega backdoor Roth may offer significantly more capacity. The total 401(k) contribution limit for 2026, including employee deferrals and employer contributions, is $72,000, or $80,000 for those age 50 and older. ³  Some 401(k) plans permit after-tax employee contributions on top of the standard deferral limit, and those after-tax contributions can sometimes be converted to a Roth account within the plan, creating substantially larger Roth balances than the IRA-based strategy allows.

How to Do a Backdoor Roth Conversion Step By Step

The backdoor Roth conversion is a sequence of relatively simple steps, but each one matters for tax purposes:

1. Open a traditional IRA: Ideally, the investor should not hold existing pre-tax IRA balances in traditional, SEP or SIMPLE IRAs, since those balances can trigger the pro rata rule and increase the taxable portion of the conversion.
2. Make a nondeductible contribution: Make a nondeductible contribution up to the annual IRA contribution limit. For taxpayers whose income exceeds the deduction limits, the IRS treats the contribution as nondeductible. This requires proper reporting on the tax return.
3. Allow the contribution to settle: Many custodians require the contribution to fully settle before they can process the Roth conversion. This often takes one to three business days. Some investors keep the funds in cash or a money market position to minimize investment gains to avoid triggering taxes upon conversion.
4. Convert the funds to a Roth IRA: Initiate a Roth conversion through the custodian, often online or through a conversion form. The full traditional IRA balance, including any earnings accrued before conversion, typically goes into the Roth IRA.
5. File IRS Form 8606: IRS Form 8606 must be filed with the annual tax return to report the nondeductible IRA contribution and track after-tax basis. This form is generally required for any year in which a nondeductible contribution is made or basis is carried forward, and it helps determine the taxable portion of the Roth conversion.

Many practitioners recommend converting soon after contributing in order to minimize any taxable gains that accrue between contribution and conversion. If gains do occur during that window, the IRS taxes them as ordinary income in the year of conversion. Keeping the traditional IRA balance in cash or a money market fund between contribution and conversion significantly reduces this exposure.

The Pro Rata Rule and How It Affects the Strategy

The pro rata rule is the most important consideration for anyone planning a backdoor Roth. Under this rule, the IRS treats any Roth conversion as coming proportionally from all of a taxpayer’s traditional IRA assets combined, not just the after-tax contribution from the conversion. This means that if any pre-tax money exists in any traditional IRA, a portion of the conversion becomes taxable.

Consider the following example. Say a taxpayer makes a $7,500 nondeductible contribution to a new traditional IRA. They also have $93,000 in a separate pre-tax traditional IRA from a previous 401(k) rollover. Their total IRA assets equal $100,500, of which only 7.5% is after-tax basis. When they convert $7,500, the pro rata rule treats 92.5% of the conversion ($6,938) as taxable and only $563 as tax-free. The strategy still works, but loses most of the intended tax benefit.

The pro rata calculation includes all traditional IRAs, SEP IRAs and SIMPLE IRAs in the taxpayer’s name. The calculation excludes Roth IRAs and employer-sponsored plans such as 401(k)s and 403(b)s.

This exclusion creates a planning opportunity. Taxpayers can often neutralize the pro rata rule by rolling existing pre-tax IRA balances into a current employer’s 401(k) before executing the backdoor conversion. Once the pre-tax money is inside the 401(k), it no longer counts toward the pro rata ratio. Not all 401(k) plans accept incoming rollovers, however, so check the plan documents before relying on this approach.

The pro rata rule resets each year based on the IRA balance as of December 31. That date determines the taxable ratio for that year’s conversion, which gives taxpayers a clear deadline for executing any rollover that would clear pre-tax assets out of their IRAs.

Common Mistakes and What to Do Before You Start

Several recurring mistakes can reduce or eliminate the benefit of a backdoor Roth, and some can create lasting tax problems if not corrected.

Failing to File Form 8606

Without this form, you have no record of the after-tax basis in the traditional IRA, and the IRS can tax the converted funds twice, once at contribution and again at withdrawal. The form is straightforward to file and should accompany the tax return in every year you make a nondeductible contribution.

The Pro Rata Rule

Anyone with a meaningful pre-tax IRA balance should address that balance, often by rolling it into a 401(k), before executing the conversion.

Traditional IRA Gains

Another common mistake is allowing gains to accumulate in the traditional IRA before converting. Even a few days of market exposure can create a small taxable amount. Holding the contribution in a money market position between contribution and conversion eliminates this issue almost entirely.

High-Income Years

Doing so may amplify the tax cost of any pro rata taxable amount or accumulated gains, since the IRS taxes those amounts at the taxpayer’s marginal rate. For those expecting a temporarily elevated income year, timing the conversion in a lower-income year may produce a better result.

The Other Five-Year Rule

Each Roth conversion starts its own five-year clock, during which the converted principal cannot be withdrawn before age 59 ½ without potentially triggering a 10% penalty. This is separate from the five-year rule that applies to direct Roth contributions and earnings.

State Tax Considerations

Not all states treat nondeductible IRA contributions the same way the federal government does, and state-level taxation of conversions can differ meaningfully from federal treatment. A quick check of state-specific rules before executing the conversion can prevent unexpected tax bills.

Working with a tax professional is often worthwhile, particularly for anyone with pre-existing traditional IRA balances, those in complex income situations and anyone executing the strategy for the first time. Professional review both before and after the conversion can confirm that the steps were executed correctly and that the appropriate forms are filed.

Bottom Line

The backdoor Roth conversion gives high-income earners access to Roth IRA benefits that would otherwise be unavailable because of income limits. Executed correctly, the strategy is straightforward, well-documented and broadly accepted by tax professionals. Executed without attention to the pro rata rule, Form 8606 filing or timing considerations, it can produce unexpected taxes or lasting record-keeping problems. Because the benefit compounds over decades of tax-free growth, getting the steps right in the first year often determines how much value the strategy ultimately delivers.

Retirement Planning Tips

• A financial advisor can walk you through the two-step conversion process and help you avoid the tax pitfalls that can reduce the benefit of a backdoor Roth IRA. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Because a backdoor Roth conversion reduces pre-tax IRA balances, it can lower your future required minimum distributions. Use SmartAsset’s RMD calculator to estimate how much you may owe in RMDs and how Roth conversions could reduce that obligation over time.
• Understanding how your Roth assets fit into your broader retirement income picture starts with knowing what Social Security will contribute. SmartAsset’s Social Security calculator can help you estimate your future monthly benefit.

Photo credit: ©iStock.com/ijeab, ©iStock.com/Jacob Wackerhausen, ©iStock.com/Daenin Arnee