What a backdoor Roth conversion is and why you might do one

A backdoor Roth conversion is a way to move money into a Roth IRA when your income is too high to contribute directly. You put after-tax money into a traditional IRA, then convert that money to a Roth IRA. The conversion itself has no income limit, even though direct Roth contributions do.

The reason people use this method is straightforward: Roth accounts grow tax-free, and you never pay taxes on withdrawals in retirement. If you earn more than the income limits allow for direct contributions, a backdoor conversion gets you the same tax-free growth without waiting.

This is a legal strategy that the IRS recognizes. It requires careful record-keeping and the right sequence of steps, but thousands of people do it every year.

Key Takeaways

  • A backdoor Roth involves depositing after-tax money into a traditional IRA, then converting it to a Roth IRA within the same tax year.
  • You must file Form 8606 with your tax return to report the conversion and avoid paying taxes twice on the same money.
  • If you have other traditional IRA balances, the pro-rata rule may force you to pay taxes on a portion of the conversion.
  • The conversion itself takes one to three business days at most brokerages, but you should complete it before year-end to keep everything in one tax year.

Step 1: Open a traditional IRA if you don't have one

You need a place to deposit the after-tax money before you convert it. If you already have a traditional IRA, you can use that. If not, open one at your brokerage — the same place where your Roth IRA is, or a different one.

The account setup takes minutes online. You'll provide your name, Social Security number, and address. There's no cost to open the account, and you don't need to fund it when ready.

Step 2: Deposit after-tax money into the traditional IRA

Transfer the amount you want to convert — usually $7,000 for 2024, or $8,000 if you're 50 or older — from your bank account into the traditional IRA. Use a bank transfer or check deposit through your brokerage's website.

Wait for the deposit to clear and settle. This typically takes one to three business days. Once the money is in the traditional IRA and fully settled, you're ready to convert.

Do not claim this deposit as a deductible contribution on your taxes. You're putting in after-tax dollars, which means you've already paid income tax on this money. Your brokerage may ask you to confirm this when you deposit — select "non-deductible" or "after-tax" if prompted.

Step 3: Convert the traditional IRA to your Roth IRA

Log into your brokerage account and look for the conversion option. Most brokerages call it "Convert to Roth" or "Roth Conversion." You'll find it in the IRA section of your account.

Select the traditional IRA you just funded, choose the amount to convert (usually all of it), and select your Roth IRA as the destination. Confirm the transaction. The conversion itself is when ready or takes one business day, depending on your brokerage.

Some brokerages require you to call or use their app instead of the website. If you can't find the option online, contact customer service and ask them to process a Roth conversion for you.

Step 4: File Form 8606 with your tax return

When you file your taxes for the year you did the conversion, you must file Form 8606 with your return. This form tells the IRS that you converted after-tax money to a Roth, so you don't owe taxes on it again.

Form 8606 has two parts. Part I reports the non-deductible contribution you made to the traditional IRA. Part II reports the conversion to the Roth. Your tax software (TurboTax, H&R Block, etc.) will walk you through both sections if you tell it you did a Roth conversion.

If you don't file Form 8606, the IRS may treat the converted money as taxable income, and you could owe taxes you shouldn't have to pay. Filing it is not optional.

What the pro-rata rule means and when it affects you

If you have any other traditional IRAs, SEP IRAs, or straightforward IRAs with a balance, the pro-rata rule applies to your conversion. This rule says you can't convert only the after-tax portion — you have to treat all your traditional IRA money as one pool, and a percentage of the conversion will be taxable.

For example: if you have $10,000 in a traditional IRA from a previous rollover, and you convert $7,000 from a new after-tax deposit, the IRS treats all $17,000 as one account. About 41% of your conversion ($2,870) will be taxable because 41% of the total pool is pre-tax money. You'd owe income tax on that $2,870.

The pro-rata rule applies across all your traditional IRA accounts at all brokerages. It doesn't matter if the accounts are at different banks — the IRS counts them together. If you have a large traditional IRA balance, a backdoor conversion may trigger a significant tax bill.

One way to avoid the pro-rata hit is to roll any traditional IRA balances into a workplace 401(k) plan if your employer allows it. Once the traditional IRA is empty, the pro-rata rule no longer applies to your conversion. Check with your plan administrator before you attempt this.

Timing: when to do the conversion within the tax year

You can do a backdoor conversion at any point during the calendar year. Many people do it in January so everything settles before year-end, but you can also do it in December.

The key is that both the deposit into the traditional IRA and the conversion to the Roth must happen in the same tax year. If you deposit money in December but don't convert until January of the next year, the IRS treats them as separate tax years, which complicates your Form 8606 filing.

To be safe, complete the entire process — deposit and conversion — by December 31. This keeps everything in one tax year and makes your tax filing simpler.

Frequently Asked Questions

Can I do a backdoor Roth if I have a 401(k) at work?

Yes. Your 401(k) doesn't affect the backdoor Roth process. The pro-rata rule only applies to traditional IRAs, SEP IRAs, and straightforward IRAs — not to 401(k)s. You can have both at the same time.

What if I convert the money but don't file Form 8606?

The IRS may treat the entire converted amount as taxable income, and you could owe income tax on money you shouldn't have to pay tax on. If you realize you forgot to file it, you can file an amended return (Form 1040-X) to add Form 8606 and correct the error.

How long does the conversion take?

The conversion itself takes one to three business days at most brokerages. The entire process — deposit, settlement, and conversion — usually takes one week. If you're doing this late in the year, start in early December to avoid any delays that might push the conversion into the next calendar year.

Can I convert more than the annual contribution limit?

Yes. The contribution limit ($7,000 in 2024) applies only to direct contributions to a Roth. Conversions have no limit. You can convert $50,000 or $100,000 if you want, but you'll owe income tax on any pre-tax money in the conversion, and you must report it all on Form 8606.

What happens to the money while it's in the traditional IRA waiting to convert?

It sits in cash or whatever investment you choose. Most people leave it in cash for a few days while it settles, then convert it right away. If the market moves during those few days, the value of your conversion changes slightly, but this doesn't affect the tax treatment — you still report the after-tax contribution and conversion on Form 8606.