How the backdoor Roth conversion works
A backdoor Roth is a sequence of moves: you put after-tax money into a traditional IRA, then move that money into a Roth IRA. The IRS allows this because you are moving money you have already paid income tax on, so the Roth receives it tax-free. The process itself takes a few weeks and involves forms you file with your IRA custodian and your tax return.
The backdoor works because the IRS does not limit who can convert a traditional IRA to a Roth IRA — only who can contribute directly to a Roth. If your income is too high to contribute directly, the backdoor route gets you the same result. You end up with after-tax money inside a Roth account, where it grows tax-free and you can withdraw it tax-free in retirement.
Key Takeaways
- You deposit after-tax money into a traditional IRA, then file Form 8606 with your tax return to report the contribution as non-deductible.
- You then convert that traditional IRA balance to a Roth IRA using a conversion form from your IRA custodian, which triggers a taxable event only on any earnings or pre-tax money in the account.
- The pro-rata rule means if you have other traditional IRAs, SEP IRAs, or straightforward IRAs with pre-tax balances, the IRS treats all of them as one pool when calculating taxes on the conversion.
- You report the conversion on Form 8606 when you file your tax return for the year the conversion happens.
- Timing matters: you must complete the conversion in the same calendar year as the contribution, or the IRS treats the after-tax deposit as a regular contribution that may be subject to the contribution limit.
Step 1: Deposit after-tax money into a traditional IRA
Open a traditional IRA with a custodian if you do not already have one. Custodians include brokerages like Fidelity, Schwab, and Vanguard, as well as banks and other financial institutions. The account itself costs nothing to open.
Deposit cash into the account. The amount you can deposit is limited by the annual contribution limit set by the IRS, which changes each year. For 2024, the limit is $7,000 if you are under 50, or $8,000 if you are 50 or older. You can only contribute money you earned as income in that calendar year, or you can contribute up to the limit if you had any earned income at all.
Do not invest the money yet. Leave it as cash in the account. You will move it to the Roth in the next step, and moving cash is simpler than moving investments.
Step 2: Convert the traditional IRA to a Roth IRA
Contact your IRA custodian and ask for a conversion form. Different custodians call this different things — Fidelity calls it an "IRA Conversion Request," Schwab calls it a "Roth Conversion," and Vanguard calls it a "Roth Conversion Form." The form is free and usually available on the custodian's website or by phone.
On the form, specify that you want to convert the full balance of your traditional IRA to a Roth IRA. If you already have a Roth IRA with the same custodian, you can convert into that account. If you do not, you will need to open a Roth IRA first — the custodian can do this at the same time.
Submit the form to your custodian. The conversion itself is electronic and usually completes within a few business days. Your custodian will send you a confirmation showing the amount converted and the date it happened.
Step 3: Report the contribution as non-deductible on your tax return
When you file your tax return for the year you made the deposit, you must report the after-tax contribution using Form 8606. This form tells the IRS that you contributed money you already paid income tax on, so it should not be taxed again when it moves to the Roth.
Form 8606 asks for the amount of your non-deductible contribution, the value of all your traditional IRAs on December 31 of that year, and the amount you converted. If you only converted the after-tax money and have no other traditional IRA balances, the form is straightforward.
File Form 8606 with your regular tax return. If you do not file Form 8606, the IRS may treat the conversion as taxable income, even though you already paid tax on the money. Filing the form is how you document that this money was after-tax.
Step 4: Report the conversion on Form 8606
Form 8606 also reports the conversion itself. You list the amount you converted and the date. Your custodian will send you a Form 1099-R showing the conversion amount, which you use to fill out the form.
The conversion is a taxable event only if the money you converted included earnings or pre-tax contributions. If you converted only the after-tax money you just deposited, with no earnings, there is no additional tax owed. If there were earnings or if you have other pre-tax IRA money, you owe tax on the portion that came from pre-tax sources.
The pro-rata rule and why other IRA balances matter
If you have a traditional IRA, SEP IRA, or straightforward IRA with a pre-tax balance, the pro-rata rule applies. This rule says the IRS treats all of your IRAs as a single account when calculating how much of a conversion is taxable. You cannot convert only the after-tax money and leave the pre-tax money behind.
For example: suppose you have $10,000 in a traditional IRA from a previous rollover (pre-tax money) and you deposit $7,000 after-tax money into a new traditional IRA. When you convert the $7,000, the IRS calculates the ratio of after-tax to total: $7,000 out of $17,000 is about 41 percent after-tax. So 41 percent of the $7,000 conversion is tax-free, and 59 percent is taxable income.
If you have significant pre-tax IRA balances, the backdoor Roth becomes less attractive because you will owe tax on a large portion of the conversion. Some people use a rollover to move pre-tax IRA money into a workplace 401(k) or 403(b) plan first, which removes it from the pro-rata calculation. Check whether your employer's plan accepts rollovers before you attempt this.
Timing and common mistakes
Complete the conversion in the same calendar year as the contribution. If you deposit money in December 2024 but do not convert it until January 2025, the IRS may treat the deposit as a contribution for 2025, which could exceed your 2025 contribution limit or trigger other issues.
Do not deposit money into the traditional IRA and then when ready withdraw it as a distribution. The IRS has a rule called the "step transaction doctrine" that can recharacterize a deposit-and-withdrawal as a failed contribution if it looks like you never intended to keep the money in the account. The conversion itself is not a withdrawal — it is a transfer to a different account type — so this rule does not explore to a backdoor Roth, but withdrawing the money before converting it does trigger the rule.
Keep records of the contribution and conversion. Your custodian will send you forms, but save your own copies of the deposit confirmation, the conversion confirmation, and Form 8606. If the IRS ever questions the transaction, these documents show what you did and when.
Frequently Asked Questions
Can I do a backdoor Roth if I have a 401(k) at work?
Yes. The income limits that prevent direct Roth contributions are based on your modified adjusted gross income, which includes 401(k) contributions. Having a 401(k) does not block a backdoor Roth. However, if you have a traditional IRA with pre-tax money, the pro-rata rule still applies to any conversion you do.
What if I have earnings in the traditional IRA before I convert?
Any earnings are taxable when you convert. If you deposit $7,000 and it earns $100 in interest before you convert, you owe tax on the $100. This is why most people convert quickly — to minimize the time the money sits in the traditional IRA earning taxable gains.
Do I have to convert in the same year I contribute?
You should convert in the same calendar year. If you contribute in 2024 and convert in 2025, the IRS may treat the 2024 contribution as a regular contribution for 2025, which could cause issues with contribution limits or require you to recharacterize the contribution.
What happens if I mess up the pro-rata calculation?
If you underreport the taxable portion of a conversion, the IRS will catch it when they match Form 1099-R from your custodian to your tax return. You will owe the tax you missed plus interest and possibly penalties. Filing Form 8606 correctly the first time prevents this.
Can I undo a backdoor Roth conversion?
You can recharacterize a conversion by moving the money back to a traditional IRA, but only if you do it by the tax-filing important date for that year (usually October 15 if you file an extension). After that important date, the conversion is permanent. Recharacterization is useful if the account lost value after you converted and you want to redo the conversion at the lower value.