The Step-by-Step Process for Setting Up a Backdoor Roth IRA

How to execute a backdoor Roth conversion in five steps

A backdoor Roth works in this order: you contribute money to a traditional IRA, then convert that money to a Roth IRA. The IRS allows this conversion even if your income is too high for a direct Roth contribution. The process itself takes about two weeks if your brokerage moves quickly, though the tax filing happens the following year.

The five steps are: open a traditional IRA if you don't have one, deposit money into it, request a conversion to a Roth IRA, move the money to your Roth account, and report the conversion on your tax return. Each step has a specific order — you cannot convert before you deposit, and you cannot file taxes before the calendar year ends.

Timing matters because of the pro-rata rule, which taxes your conversion based on all your traditional IRA balances on December 31 of that year. If you have other traditional IRAs, SEP IRAs, or straightforward IRAs, the IRS treats them as one pool for tax purposes. This is the single biggest trap in a backdoor Roth, and it happens automatically whether you intend it or not.

Key Takeaways

You must deposit money to a traditional IRA first, then convert it to Roth — the order cannot be reversed, and the IRS tracks the sequence.
If you have any other traditional IRA balances on December 31, the pro-rata rule will tax part of your conversion, even if you only meant to convert the new money.
The conversion itself takes one to three weeks at most brokerages, but you must report it on Form 8606 when you file taxes the following year.
You can do a backdoor Roth once per calendar year, and the contribution limit is the same as a regular Roth — $7,000 for 2024 if you are under 50, or $8,000 if you are 50 or older.
Some employers' retirement plans can accept "reverse rollovers" of traditional IRA money, which eliminates the pro-rata problem if you have existing traditional IRA balances.

Step 1: Open a traditional IRA and deposit the money

If you already have a traditional IRA, you can skip opening a new account. If you don't, choose a brokerage — Fidelity, Vanguard, Charles Schwab, and most other major firms offer them. The account setup takes minutes online. You will need your Social Security number and a funding method (bank account or transfer from another brokerage).

Deposit the amount you want to convert. For 2024, the limit is $7,000 if you are under 50, or $8,000 if you are 50 or older. You can only make one backdoor Roth per calendar year, so if you have already contributed to a traditional IRA this year, that counts toward your limit. The money can sit in the account for a few days before you convert — there is no rush, and waiting does not change the tax outcome.

Do not claim a tax deduction for this deposit. When you file taxes, you will report it as a non-deductible contribution on Form 8606. This is crucial: if you deduct it, the IRS will tax you twice on the same money.

Step 2: Request the conversion from your brokerage

Log into your brokerage account and look for "convert to Roth" or "Roth conversion" in the IRA section. Most brokerages have this as a single button or form. You will specify the amount to convert — usually the full deposit you just made — and the destination Roth IRA account (either at the same brokerage or elsewhere).

Some brokerages require you to call or submit a form by mail. Check your brokerage's website or call their IRA department to confirm the process. The conversion request itself is free and takes one business day to process.

The brokerage will send you a confirmation and a Form 1099-R, which reports the conversion to the IRS. Keep this form — you will need it when you file taxes.

Step 3: Monitor the transfer to your Roth account

After you request the conversion, the money moves from your traditional IRA to your Roth IRA. If both accounts are at the same brokerage, this usually happens within one to three business days. If the Roth is at a different brokerage, it can take up to two weeks because the money travels between institutions.

You can check the status by logging into both accounts. The traditional IRA balance should decrease, and the Roth balance should increase. If the transfer stalls beyond two weeks, contact your brokerage — delays are rare but do happen, especially around tax season or market volatility.

Once the money lands in your Roth, the conversion is complete from an operational standpoint. The tax reporting comes later.

Step 4: File Form 8606 with your tax return

When you file your income tax return for the year of the conversion, you must include Form 8606 (Nondeductible IRAs). This form tells the IRS that you made a non-deductible contribution to a traditional IRA and then converted it to a Roth.

You will need the Form 1099-R from your brokerage, which shows the conversion amount. You will also report the fair market value of all your traditional IRAs on December 31 of that year — this is where the pro-rata rule applies. If you have $50,000 in a traditional IRA and you convert $7,000 from a new traditional IRA, the IRS treats all $57,000 as one pool, and taxes your conversion based on the ratio of pre-tax money to after-tax money in that pool.

If you do not file Form 8606, the IRS will assume your entire conversion was pre-tax money and tax you on the full amount. Filing the form is how you prove the money was after-tax.

The pro-rata rule and how to avoid it

The pro-rata rule is automatic and applies whether you know about it or not. It taxes your conversion based on the percentage of pre-tax money in all your traditional IRAs combined on December 31. If you have $100,000 in a traditional IRA from a rollover and you convert $7,000 from a new traditional IRA, roughly 93% of your conversion will be taxed as income.

The only way to avoid the pro-rata rule is to move all your existing traditional IRA money into an employer retirement plan before you do the conversion. This is called a reverse rollover or rollover to a workplace plan. Not all employers allow it — check with your plan administrator first. If your plan allows it, you can roll your traditional IRA balance into a 401(k), 403(b), or similar plan, which removes it from the pro-rata calculation. Then you can do your backdoor Roth conversion without tax consequences.

If you cannot do a reverse rollover and you have existing traditional IRA balances, you will owe taxes on part of your conversion. The amount depends on your specific balances and is calculated on Form 8606.

Common mistakes and how to prevent them

The most common mistake is converting before depositing. You cannot convert money that is not in the account yet. Some people also deposit to a Roth IRA directly and then try to move it to a traditional IRA — this does not work and creates a different tax problem. The money must go traditional first, then Roth.

Another mistake is claiming a tax deduction for the traditional IRA deposit. If you deduct it, you will owe taxes on the conversion and on the original contribution, paying tax twice on the same dollars. Always report it as non-deductible on Form 8606.

A third mistake is ignoring the pro-rata rule. If you have any traditional IRA balance on December 31, it affects your conversion tax bill. Some people discover this when they file taxes and owe far more than expected. Check all your IRA statements on December 31 before you convert.

Finally, some people miss the important date to file Form 8606. The form must be filed with your tax return for the year of the conversion. If you file late or forget the form, you can file an amended return (Form 1040-X) with Form 8606 attached, but this creates extra work and potential IRS scrutiny.

Frequently Asked Questions

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

Yes. A 401(k) does not count toward the pro-rata rule — only traditional IRAs, SEP IRAs, and straightforward IRAs do. You can have a 401(k) and do a backdoor Roth without any tax consequence from the 401(k). However, if you also have a traditional IRA balance, that traditional IRA will trigger the pro-rata rule.

What if I convert the money but it loses value before I file taxes?

You still owe taxes based on the value on the day you converted, not the current value. If your $7,000 conversion drops to $6,000 by the time you file taxes, you still report the $7,000 conversion on Form 8606. The loss is not deductible. This is why some people convert when markets are down — the conversion amount is lower, so the tax bill is lower.

Can I undo a backdoor Roth conversion?

You can recharacterize a conversion back to a traditional IRA, but only if you do it before the tax filing important date (including extensions) for that year. After that important date, the conversion is permanent. Recharacterization reverses the conversion and removes the tax bill, but you lose the benefit of moving money into a Roth.

Do I need to do a backdoor Roth every year?

No. You can do one whenever your income exceeds the Roth contribution limit, or whenever you want to move money into a Roth. Many people do one every year, but it is not required. You can also skip years and do multiple conversions in a single year if you want, though you still cannot exceed the annual contribution limit per calendar year.

What happens if I mess up the order and convert before depositing?

The conversion will fail or the brokerage will reject it because there is no money to convert. Start over: deposit to the traditional IRA first, wait for the deposit to clear, then request the conversion. There is no penalty for attempting it in the wrong order — the transaction straightforward will not go through.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.