If your income is above the Roth IRA direct-contribution phase-out, $165K single or $246K MFJ for 2026, you can’t put $7,000 directly into a Roth IRA. But you can do a Backdoor Roth: contribute non-deductible to a Traditional IRA, then immediately convert to Roth. The IRS has explicitly blessed this strategy (Treasury Notice 2018-04, post-TCJA codification).

But there’s a trap. The pro-rata rule (IRC §408(d)(2)) ruins the math if you have any pre-tax IRA balance, and most people who try Backdoor Roth without knowing this end up paying tax twice.

Here’s how to do it right.

The Backdoor Roth, step by step

Step 1: Contribute non-deductible to a Traditional IRA

Open or use an existing Traditional IRA. Contribute $7,000 (or $8,000 if 50+, for 2026). Because your income is above the deduction phase-out, don’t take the deduction, file Form 8606 reporting it as a non-deductible contribution.

Step 2: Convert to Roth immediately

Within a few days, convert the Traditional IRA balance to a Roth IRA. The conversion is mostly tax-free because the $7,000 contribution was after-tax (your basis).

Step 3: File Form 8606 for the conversion year

Reports both the non-deductible contribution AND the conversion. Critical for tracking basis, without 8606, the IRS treats the entire converted amount as taxable.

Done. You now have $7,000 in a Roth IRA growing tax-free.

The pro-rata rule (the trap)

When you do a Roth conversion, the IRS uses the aggregate balance of ALL your Traditional IRAs, across all accounts at all institutions, and applies a basis ratio to determine what’s taxable.

The formula:

  • Total non-deductible (after-tax) basis ÷ Total IRA balance = % of conversion that’s tax-free
  • Remaining % = taxable as ordinary income

Why this is a problem

You contributed $7,000 non-deductible. But you also have a $100,000 Traditional IRA balance from a 401(k) rollover years ago (pre-tax).

  • Total non-deductible basis: $7,000
  • Total IRA balance: $107,000
  • Tax-free portion of conversion: $7,000 ÷ $107,000 = 6.5%
  • Tax-free conversion: $7,000 × 6.5% = $457
  • Taxable conversion: $7,000 × 93.5% = $6,543

You wanted to convert $7,000 tax-free; instead $6,543 is taxable as ordinary income at your marginal rate (32% = $2,094 of tax). Your $100,000 pre-tax IRA is now mathematically “polluted” by the non-deductible contribution.

Worse, the remaining $100,000 in the Traditional IRA now has $6,543 of basis attached to it for future tracking purposes. Every future conversion or withdrawal will apply this ratio.

The fix: empty the pre-tax bucket

You have two clean paths to make Backdoor Roth work:

Path A: Roll pre-tax IRA into your 401(k)

Most 401(k) plans accept reverse rollovers from a Traditional IRA. This moves the pre-tax money out of your IRA universe and into your employer’s 401(k), where it’s invisible to the pro-rata rule (which only looks at IRAs).

Steps:

  1. Confirm your 401(k) plan accepts reverse rollovers (most large-employer plans do, ask plan admin).
  2. Roll the entire Traditional IRA balance to the 401(k) plan.
  3. Now your Traditional IRA balance is $0.
  4. Make the non-deductible $7,000 contribution.
  5. Convert to Roth, fully tax-free.

Path B: Convert the entire pre-tax IRA to Roth

Doable but expensive, converting $100,000 of pre-tax IRA to Roth generates $32,000 of tax at 32% marginal. Often spread over multiple years to manage bracket exposure. Sometimes the right move if you’re in a low-income year (sabbatical, between jobs, retired but pre-RMD).

Path C: Skip it

If neither Path A nor B works, and pro-rata pollution is meaningful, just don’t Backdoor Roth. Stick with taxable brokerage. The “lost” $7K/year of Roth space is worth less than the $2-3K of unnecessary tax per conversion.

Year-end timing matters

The pro-rata rule uses your December 31 IRA balance of the conversion year. Two implications:

  • Convert early in the year: Gives more time to address pro-rata issues mid-year if needed.
  • Don’t make a Traditional IRA rollover in December if you’ve done a Backdoor Roth that same year. The rollover increases your December 31 balance and changes the basis ratio retroactively.

Common mistakes

Forgetting to file Form 8606. Without it, the IRS treats the entire contribution as deductible (which you can’t take given your income) AND the entire conversion as taxable. Form 8606 must be filed every year you make a non-deductible contribution.

Mixing accounts. Pro-rata aggregates across ALL Traditional IRAs (rollover IRAs, SEP IRAs, SIMPLE IRAs older than 2 years). A “fresh” Traditional IRA isn’t isolated from your other Traditional IRA balances.

Taking the deduction. If you take the deduction, the contribution becomes pre-tax → entire conversion is taxable. Form 8606 must clearly mark it as non-deductible.

Confusing with Mega Backdoor Roth. Mega Backdoor lives entirely inside your 401(k) and is NOT subject to the IRA pro-rata rule. See our Mega Backdoor Roth article.

Doing it without checking spouse’s IRA balances. Pro-rata applies per-individual, not per-couple. But if you set up a Backdoor Roth for both spouses, each must individually be free of pre-tax IRA balances.

What about SEP IRAs?

A SEP IRA counts as a Traditional IRA for pro-rata purposes. If you’re self-employed with a SEP, doing Backdoor Roth on top will pollute the conversion. Mitigation: roll SEP balance into a Solo 401(k) first, or use only Solo 401(k) and skip the SEP.

Worked example: clean path

Single tech worker, $180K salary (above $165K Roth phase-out), has a $50K rollover IRA from previous employer.

Without pro-rata fix:

  • Contribute $7K non-deductible to TIRA, balance now $57K
  • Convert $7K → basis ratio = $7K / $57K = 12.3%
  • Tax-free portion: $861. Taxable portion: $6,139.
  • Tax at 32% marginal: $1,964

With pro-rata fix (Path A):

  • Step 1: Reverse-roll $50K rollover IRA into current 401(k). TIRA balance $0.
  • Step 2: Contribute $7K non-deductible. TIRA balance $7K.
  • Step 3: Convert $7K → fully tax-free (basis ratio = 100%).
  • Tax owed: $0

The difference: ~$2K of unnecessary tax per year vs $0. Over a 30-year career = $60K of avoided tax.

Compute scenarios on the Backdoor Roth Calculator.

Other countries

Backdoor Roth-style transactions are uniquely available in the US due to the asymmetric income limits (high contribution income cap on Roth, no income cap on Traditional contributions + conversion). UK, Canada, Australia, and India don’t have analogous loopholes, their Roth-equivalent vehicles (ISA, TFSA, etc.) have lower flat contribution caps with no income-based phase-outs.

Primary sources