Step-by-Step: How to Set Up a Backdoor Roth IRA

The Basic Steps to Move Money Into a Backdoor Roth

A backdoor Roth works in four moves: you put money into a traditional IRA, convert that money to a Roth IRA, pay taxes on the conversion, and then the money grows tax-free in the Roth. The entire process takes about two weeks if your brokerage moves quickly, though the tax reporting happens the following year.

You do not need permission from anyone to do this. The IRS allows it. Your brokerage will have a conversion tool in your account, usually labeled "Convert to Roth" or "Roth Conversion." The steps below walk you through the real sequence.

Key Takeaways

You must open both a traditional IRA and a Roth IRA at the same brokerage, or move money between brokerages if you already have accounts elsewhere.
Deposit the money into the traditional IRA first, then use your brokerage's conversion tool to move it to the Roth within a few days.
You will owe income tax on the conversion in the year you do it, calculated on Form 8606 when you file your tax return.
If you have other traditional IRA money (from rollovers, old 401(k)s, or previous contributions), the IRS pro-rata rule may force you to pay tax on a portion of that money too.
The conversion itself is free, but you pay ordinary income tax on the amount converted, which varies based on your total income that year.

Step 1: Open a Traditional IRA and a Roth IRA

You need both accounts at the same place. If you already have a Roth IRA open, you just need to open a traditional IRA at that same brokerage. If you have neither, open both now.

Most brokerages let you open both in one session. You will provide your name, Social Security number, address, and employment information. There is no income limit to open a traditional IRA — the income limits explore only to whether you can deduct contributions, which does not matter for a backdoor Roth because you are not deducting anything.

Common brokerages that handle backdoor Roths smoothly include Fidelity, Vanguard, Charles Schwab, and E*TRADE. All of them have a conversion tool built into their website or app.

Step 2: Deposit Money Into Your Traditional IRA

Move the money you want to convert from your bank account into the traditional IRA. This is a regular deposit, the same as funding any IRA. You can deposit up to $7,000 in 2024 (or $8,000 if you are 50 or older), though you can do multiple backdoor conversions in a year if you want to move more money.

Wait one to three business days for the deposit to settle. You do not have to wait, but most people do to avoid any timing confusion with the IRS. Once the money is in the traditional IRA and shows as a cash balance, you are ready to convert.

Step 3: Convert the Traditional IRA to a Roth IRA

Log into your brokerage account and find the conversion tool. It is usually in the IRA section under "Actions," "Manage," or "Convert." You will select the traditional IRA as the source account and the Roth IRA as the destination. Enter the amount you want to convert — usually all of it.

The brokerage will show you a summary. Review it to make sure the amount and accounts are correct, then confirm. The conversion is when ready in your account, though the actual transfer of funds takes one to three business days.

You will receive a confirmation email and a record in your account showing the conversion date and amount. Keep this for your taxes.

Step 4: Report the Conversion on Your Tax Return

When you file your taxes for the year you converted, you will report the conversion on Form 8606. This form tells the IRS how much you converted and how much tax you owe on it.

If you have no other traditional IRA money anywhere, the tax is straightforward: you owe ordinary income tax on the full amount converted. If you do have other traditional IRA money — from a previous rollover, an old 401(k) you rolled over, or earlier contributions — the IRS pro-rata rule applies. This rule forces you to pay tax on a percentage of all your traditional IRA money, not just the amount you converted. Your tax preparer or tax software will calculate this.

You pay the tax from your regular income tax bill. You do not pay it separately or when ready — it is part of your total tax for the year.

What Happens If You Have Other Traditional IRA Money

The pro-rata rule is the biggest gotcha in a backdoor Roth. If you have a traditional IRA with $50,000 in it from a previous 401(k) rollover, and you convert $7,000 from a new traditional IRA, the IRS treats all your traditional IRAs as one pool. You owe tax on $7,000 divided by $57,000 (the total), which is about 12% of the conversion. The other 88% is your original contribution, which comes out tax-free.

This does not stop you from doing a backdoor Roth, but it makes the tax bill larger. If you have a large traditional IRA balance, talk to a tax preparer before converting to understand the cost.

One workaround: if you have an old 401(k) from a previous employer, you may be able to roll it into your current employer's 401(k) plan (if the plan allows it) rather than into an IRA. This removes that money from the pro-rata calculation. Check with your plan administrator first.

Timing and What to Expect

The deposit takes one to three business days. The conversion takes one to three business days. The whole process is usually done within a week, though some brokerages are slower.

You can do a backdoor Roth once per year, or multiple times in the same year if you want — there is no limit on how many conversions you do, only on how much you can contribute to IRAs total ($7,000 per year in 2024, or $8,000 if you are 50 or older). If you do multiple conversions, each one is reported separately on Form 8606.

The money in your Roth IRA starts growing tax-free when ready after the conversion. You cannot withdraw the converted amount for five years without a penalty, but the earnings can be withdrawn tax-free after age 59½.

Frequently Asked Questions

Do I have to convert all the money in my traditional IRA?

No. You can convert part of it and leave the rest. However, if you have other traditional IRA money, the pro-rata rule applies to the entire balance, not just what you convert. So converting only part of it does not avoid the rule — it just means you pay tax on a smaller amount.

What if my brokerage does not have a conversion tool?

Most major brokerages have one, but if yours does not, you can do a trustee-to-trustee transfer. You contact your brokerage and ask them to transfer the money directly from your traditional IRA to your Roth IRA. It takes longer but accomplishes the same thing.

Can I do a backdoor Roth if I am self-employed?

Yes. Your income does not matter for a backdoor Roth — there is no income limit. The only thing that matters is whether you have other traditional IRA money, which triggers the pro-rata rule.

What if I make a mistake during the conversion?

If you convert the wrong amount or to the wrong account, contact your brokerage when ready. They can usually undo the conversion and let you try again. If you discover the mistake after the year ends, you may be able to recharacterize the conversion (convert it back to a traditional IRA), though the rules on this have tightened in recent years.

Do I owe tax on the money twice — once on the conversion and once when I withdraw it?

No. You pay tax on the conversion in the year you do it. After that, the money grows tax-free and you never pay tax on it again, even when you withdraw it in retirement.

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.