What happens when you do a backdoor Roth

A backdoor Roth is a two-step process where you put money into a traditional IRA, then when ready convert that money to a Roth IRA. The IRS allows this even if your income is too high to contribute directly to a Roth. You end up with the same money in a Roth account, but you took a detour through a traditional IRA to get there.

The reason this matters: once money is in a Roth, it grows tax-free and you can withdraw it tax-free in retirement. A backdoor Roth lets high earners reach that tax-free growth when the front door (direct Roth contributions) is closed to them.

The process itself is straightforward, but the tax consequences depend on whether you already have other traditional IRA money. That's where most people run into trouble.

Key Takeaways

  • A backdoor Roth involves contributing to a traditional IRA and converting it to a Roth IRA in the same tax year, bypassing income limits.
  • You pay income tax on the converted amount only if the money represents earnings or if you have other pre-tax IRA balances.
  • If you have existing traditional IRAs, SEP IRAs, or straightforward IRAs with pre-tax money, the conversion triggers taxes on a portion of the entire conversion amount.
  • The conversion must happen in the same calendar year as the contribution, though you can file your tax return before converting if you're using the pro-rata rule.
  • Backdoor Roths are reported on Form 8606, which you file with your tax return.

Step one: contribute to a traditional IRA with no tax deduction

You open or use an existing traditional IRA and deposit money into it. For 2024, you can contribute up to $7,000 (or $8,000 if you're 50 or older). You do not deduct this contribution on your tax return — you're putting in after-tax dollars.

This is the key difference from a regular traditional IRA contribution. Normally, if you earn less than the income limit, you deduct your traditional IRA contribution and reduce your taxable income. With a backdoor Roth, you contribute but take no deduction. The money sits in the traditional IRA as a non-deductible contribution.

You can do this even if your income is $500,000 or $1 million. There is no income limit on making non-deductible contributions to a traditional IRA. The income limit only applies to whether you can deduct the contribution or contribute directly to a Roth.

Step two: convert the traditional IRA to a Roth IRA

After the contribution settles (usually a few business days), you instruct your IRA custodian to convert the traditional IRA balance to a Roth IRA. You can convert the entire balance or part of it. Most people convert the full amount right away to keep things straightforward.

The custodian moves the money from the traditional IRA to a Roth IRA in your name. This is not a withdrawal — it's a direct transfer between accounts. You don't touch the money, and no check is issued to you.

The conversion can happen days after the contribution, or weeks later. Some people wait a few days to let any pending transactions clear. The important thing is that both the contribution and the conversion happen in the same calendar year.

How taxes work on the conversion

When you convert a traditional IRA to a Roth, the IRS treats it as if you withdrew the money and then deposited it into the Roth. You owe income tax on the amount converted — but only on the portion that represents pre-tax money.

If your contribution was $7,000 in after-tax dollars and the account has grown to $7,200, you owe tax only on the $200 gain. The $7,000 you already paid tax on does not get taxed again. This is reported on Form 8606 when you file your return.

The problem arises if you have other traditional IRA accounts with pre-tax money in them. The IRS has a rule called the pro-rata rule: when you convert, the IRS treats all your traditional IRAs as one big pool. The conversion is taxed based on the ratio of pre-tax money to after-tax money across all your accounts.

Example: You have a traditional IRA with $50,000 in pre-tax money (from a rollover or deductible contributions). You contribute $7,000 in after-tax dollars to a different traditional IRA and convert it. The IRS sees $57,000 total, of which $50,000 is pre-tax. That's 88% pre-tax. So 88% of your $7,000 conversion ($6,160) is taxable income. You owe tax on $6,160, and only $840 goes into the Roth tax-free.

The pro-rata rule and why existing IRAs matter

The pro-rata rule applies to all traditional IRAs you own, including SEP IRAs and straightforward IRAs. It does not matter if the accounts are at different banks or custodians — the IRS treats them as one account for this calculation.

This is why financial advisors often recommend rolling over old 401(k)s into a 401(k) at your current employer (if the plan allows it) rather than rolling them into an IRA. A 401(k) is not subject to the pro-rata rule. If you have a 401(k) with pre-tax money and you do a backdoor Roth, the 401(k) balance does not factor into the pro-rata calculation.

If you have a Roth IRA already, that does not affect the pro-rata rule either. The rule only looks at traditional IRAs, SEP IRAs, and straightforward IRAs.

The pro-rata rule is calculated on December 31 of the year you do the conversion. So if you have $50,000 in a traditional IRA on December 31, and you convert $7,000 on January 15 of the next year, the pro-rata rule uses the December 31 balance from the prior year.

Reporting the conversion on your tax return

You report the backdoor Roth on Form 8606, which you file with your federal tax return. Form 8606 has two parts: Part I for non-deductible contributions and Part II for conversions.

On Part I, you report the $7,000 non-deductible contribution you made to the traditional IRA. On Part II, you report the conversion amount and calculate how much of it is taxable based on the pro-rata rule.

If you have no other traditional IRA money, Part II is straightforward: you convert $7,000, none of it is taxable (because it was all after-tax money), and you're done. If you have pre-tax IRA money, the form walks you through the pro-rata calculation.

You must file Form 8606 even if none of the conversion is taxable. Failing to file it can result in penalties and complications if the IRS audits your return.

Timing and the same-year rule

The contribution and conversion must happen in the same calendar year. If you contribute in December 2024 and convert in January 2025, that's two different tax years, and the IRS does not allow it.

You have until the tax filing important date (usually April 15 of the following year) to file your return reporting the conversion. But the actual contribution and conversion transactions must be completed by December 31.

Some people worry about the order: does the contribution have to clear before you convert? In practice, most custodians require the contribution to settle before they'll process a conversion. But you can file your tax return before the conversion is complete, as long as both happen in the same calendar year. Just make sure the custodian has a record of both transactions before you file.

Common mistakes and how to avoid them

The biggest mistake is not checking for existing traditional IRA balances. If you have an old 401(k) from a previous job, rolling it into an IRA before doing a backdoor Roth will trigger the pro-rata rule and create a large tax bill. Roll old 401(k)s into your current employer's plan instead, or leave them where they are.

Another mistake is waiting too long to convert. If you contribute in January and convert in November, you're fine — both are in the same year. But if you contribute in December and forget to convert until February, you've missed the window. Set a calendar reminder to convert within a few weeks of contributing.

A third mistake is not filing Form 8606. Even if the conversion is entirely tax-free, you must report it. The IRS uses Form 8606 to track Roth conversions and may support you're not taking distributions improperly later.

Finally, some people contribute to a Roth IRA directly and then try to convert it, thinking they can undo a mistake. You cannot convert a Roth IRA to a traditional IRA. The conversion only goes one direction: traditional to Roth.

Frequently Asked Questions

Can I do a backdoor Roth if I'm married and filing jointly?

Yes, but both spouses must follow the same rules. Each spouse can contribute $7,000 to their own traditional IRA and convert it. The pro-rata rule applies to each spouse separately based on their own IRA balances. If one spouse has a large traditional IRA balance, it affects only that spouse's conversion, not the other spouse's.

What if my backdoor Roth conversion is taxable because of the pro-rata rule?

You owe income tax on the taxable portion at your ordinary income tax rate. If you convert $7,000 and $6,000 of it is taxable, you report $6,000 as income on your tax return. You pay tax on it like any other income. The $1,000 that was after-tax goes into the Roth tax-free.

Do I have to convert the entire traditional IRA, or can I convert just part of it?

You can convert part of it. But the pro-rata rule still applies to the portion you convert. If you have $50,000 pre-tax and $7,000 after-tax, and you convert only the $7,000, the pro-rata rule still treats it as 88% taxable. Partial conversions do not avoid the pro-rata rule.

What happens if I make a mistake and need to undo the conversion?

You can recharacterize a conversion by moving the money back from the Roth to a traditional IRA. This must happen by the tax filing important date (usually October 15 if you file an extension). Recharacterization undoes the conversion for tax purposes, as if it never happened. You'll need to file an amended Form 8606.

Can I do a backdoor Roth every year?

Yes. As long as you have no other traditional IRA balances, you can do a backdoor Roth every year. Each year you contribute $7,000 (or $8,000 if 50+) to a traditional IRA and convert it. Each conversion is reported separately on Form 8606.