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Guide · Retirement accounts

The backdoor Roth IRA: a CPA's complete guide

The backdoor Roth IRA is a way for people who earn too much to put money into a Roth IRA directly to still get money into one... just not directly. Here's how it works for 2026, step by step, including the one rule that trips up almost everyone.

Last reviewed Nov 8, 2026 by Blake, CPA.

I'm a CPA, but I'm not your CPA. This guide explains the rules, but it can't see your balances or your return, so check your own situation with a tax professional before you move money.

I also made two videos on this in December 2024: Backdoor Roth IRA Explained and Mega Backdoor Roth. The steps in them still hold, but the dollar figures are older. Every number on this page is the 2026 number, with a link to where the IRS says it.

What it is and who it's for

A Roth IRA is an individual retirement account where you put in money you've already paid tax on, and then the growth and qualified withdrawals come out tax-free later.

The catch is that you can't contribute to a Roth IRA directly once your income gets too high. For 2026, the IRS phases you out based on your modified adjusted gross income, which basically just means your adjusted gross income with a few items added back:

Those figures are from the IRS's 2026 limits announcement (IR-2025-111). Inside the range you can make a reduced contribution, and above the top of it you can't make any direct contribution at all.

The married filing separately number is the one that got my attention personally. My wife and I have filed separately because of her student loan repayment plan, and at $10,000 the door to a direct Roth contribution is basically shut for us.

So how does the backdoor Roth IRA get around this? Well, there's no income limit on contributing to a traditional IRA, and since 2010 there's no income limit on converting a traditional IRA to a Roth IRA. You put money in the side door, then move it to the Roth.

For 2026, the most you can contribute across all your traditional and Roth IRAs combined is $7,500, or $8,600 if you're 50 or older (a $1,100 catch-up). That's from the IRS page on IRA contribution limits. You also need taxable compensation, which basically just means wages or self-employment income, at least equal to what you put in.

The three steps: contribute, convert, report

I walk through these same steps in the video starting at 2:21.

  1. Contribute nondeductible money to a traditional IRA. "Nondeductible" means you don't take a tax deduction for it, so it's money you've already paid tax on. If you or your spouse has a workplace retirement plan and your income is high, you probably can't deduct it anyway, and your tax software should figure that out. The IRS lays out who can deduct on its IRA deduction limits page. (Video at 2:35.)
  2. Convert it to a Roth IRA. Most brokers have a "convert to Roth" button, and it's a few clicks. Some brokers make you sell to cash first and some let you move the investments as they are, which is a broker policy rather than a tax rule. (Video at 3:31.)
  3. Report it on Form 8606 with your tax return. This is the step people skip, and it's the step that proves you already paid tax on the money.

You can make a 2026 contribution up until the April 2027 filing deadline, but the conversion is reported in the year it actually happens, and that matters for the pro-rata rule.

Form 8606, in plain English

Form 8606 is the IRS form for nondeductible IRAs. You attach it to your Form 1040, and you file one for each person, not one per couple.

Part I tracks your basis. Basis is an accounting word that basically just means the money you've already paid tax on, so the IRS doesn't tax it a second time. Your nondeductible contribution goes here, along with any basis carried over from prior years, and this is also where the pro-rata math happens.

Part II reports the conversion itself: how much you moved from a traditional IRA to a Roth IRA, and how much of it is taxable.

The two lines to know are line 6 and line 8. Line 6 is the value of all your traditional, SEP and SIMPLE IRAs on December 31 of the conversion year. Line 8 is the net amount you converted during the year. Both are described in the Form 8606 instructions.

The instructions also say there's a $50 penalty for not filing the form when you're required to, and $100 for overstating your nondeductible contributions, unless you can show reasonable cause. The bigger cost of skipping it, from what I've seen, is that you lose track of your basis and end up paying tax on the same dollars twice years later.

Your broker's Form 1099-R for the conversion will often make the whole amount look taxable. That's normal... Form 8606 is where you show the real taxable amount.

The pro-rata rule, with real dollars

The pro-rata rule says you can't pick which dollars you convert. The IRS treats all of your traditional, SEP and SIMPLE IRAs as one big pot, and every conversion is a proportional slice of the taxed and untaxed money in that pot.

Think about it like a glass of lemonade. Once the lemon and the water are mixed, you can't pour out just the water.

Here's how it works on Form 8606:

Let's say you contribute $7,500 nondeductible to a traditional IRA in 2026 and convert it the next week. But you also have an old rollover IRA from a previous job worth $67,500, all pre-tax, and on December 31 it's still worth $67,500.

ItemAmount
Basis (nondeductible contribution)$7,500
Dec 31 balance of all traditional, SEP and SIMPLE IRAs (line 6)$67,500
Amount converted (line 8)$7,500
Total pot (line 6 + line 8)$75,000
Tax-free share ($7,500 / $75,000)10%
Tax-free part of the conversion$750
Taxable part of the conversion$6,750
Basis left over for future years$6,750

Said another way, you converted $7,500 you already paid tax on, and you still owe ordinary income tax on $6,750 of it. Your leftover basis isn't lost, it carries forward on next year's Form 8606, but it's now stuck inside the old rollover IRA.

Two things that surprise people here. First, it's the December 31 balance that counts, not your balance on the day you converted, so opening a rollover IRA in November can wreck a conversion you did back in February. Second, 401(k)s, 403(b)s and inherited IRAs aren't part of the pot. Only your own traditional, SEP and SIMPLE IRAs are.

If you want to run your own numbers, the backdoor Roth calculator does this exact math.

The fix: roll pre-tax IRA money into your 401(k)

If your employer's 401(k) accepts incoming rollovers, a lot of them do, you can move your pre-tax IRA money into the 401(k). Since 401(k)s aren't counted in the pro-rata pot, your December 31 IRA balance drops to zero.

In the example above, if you roll the $67,500 into your 401(k) before December 31, line 6 becomes $0. Your tax-free share becomes $7,500 divided by $7,500, which is 100%, and the conversion is tax-free.

Timing and the "step transaction" worry

The step transaction doctrine is a legal idea where the IRS can look at several steps done together and treat them as the one thing they add up to. The worry is that "contribute, then convert right away" is just a Roth contribution you weren't allowed to make.

I have to be honest here: the IRS has never issued official guidance blessing the backdoor Roth. There's no ruling or notice that says "yes, this is fine."

What people commonly point to is the 2017 tax bill's conference report (H. Rept. 115-466), published in late 2017 for the law that took effect in 2018. In its explanation of recharacterizations, it describes someone over the income limit contributing to a traditional IRA and then converting it to a Roth as something they can do. That's congressional explanation, not law and not IRS guidance, but it's the closest thing there is.

From what I can tell, the strategy has been widely used for years without the IRS coming after people for doing it the plain way. Some people wait a few days before converting and some convert the next day... there's no official waiting period either way, and waiting longer has a cost, which brings us to growth.

Any growth before you convert is taxable

Your basis is only what you put in. If your $7,500 grows to $7,550 before you convert, the extra $50 is pre-tax money and it's taxable when you convert it. I explain this in the video at 4:14.

That's why a lot of people park the contribution in a money market fund or cash and convert soon after. A few dollars of interest is a small tax bill, but months of stock gains can add up.

Spouses are separate people for this

There's no such thing as a joint IRA. Each spouse has their own IRA, their own basis and their own Form 8606.

That means the pro-rata rule is per person. If your spouse has a big pre-tax rollover IRA and you don't, your backdoor Roth is clean and theirs isn't.

The 5-year rules, briefly

There are two separate 5-year clocks, and people mix them up. I touch on this in the video at 5:52.

Roth withdrawals come out in a set order: regular contributions first, then conversions oldest first, then earnings last. The details are in IRS Publication 590-B. If you plan to leave the money alone until retirement, you mostly don't have to think about this.

Common mistakes I see

  1. Forgetting the pro-rata rule. A SEP IRA or an old rollover IRA sitting on December 31 turns a tax-free conversion into a taxable one.
  2. Not filing Form 8606. Without it, the IRS has no record of your basis, and your 1099-R makes the whole conversion look taxable.
  3. Taking the deduction anyway. If you deduct the contribution, it isn't basis anymore, and the conversion is taxable.
  4. Mixing up the years. A 2026 contribution made in March 2027 and converted then goes on two different Forms 8606: the contribution on 2026's, the conversion on 2027's.
  5. Contributing more than the limit or without enough earned income. Excess contributions are hit with a 6% tax every year until you fix them. Publication 590-A covers this.
  6. Expecting to undo it. Since 2018, you can't recharacterize a Roth conversion, which basically just means you can't reverse it once it's done.

The mega backdoor Roth, briefly

The mega backdoor Roth is a separate strategy that runs through your 401(k) instead of an IRA, and it can move a lot more money. You can do both in the same year because the limits are separate.

For 2026, per the IRS's cost-of-living limits table and the 2026 announcement:

2026 limitAmount
Your 401(k) contributions, pre-tax or Roth$24,500
Catch-up, age 50 and older$8,000
Catch-up, ages 60 to 63 (instead of $8,000)$11,250
Total from you and your employer (the 415(c) limit)$72,000

The 415(c) limit is the cap on everything going into your account in a year: your contributions, your employer's match and profit sharing, and after-tax contributions. Catch-up contributions are counted on top of it.

The mega backdoor fills the gap with after-tax contributions, which are a third type of 401(k) money that isn't pre-tax and isn't Roth. Say you put in $24,500 and your employer adds $10,000. That leaves up to $37,500 of room for after-tax contributions, which you then convert to Roth.

It only works if your plan allows two things: after-tax contributions, and either in-plan Roth conversions or in-service withdrawals, which basically just means letting you move money out while you still work there. You have to ask your plan, and I explain how in the mega backdoor video at 2:53.

Same lesson as the regular backdoor: convert soon, because growth on the after-tax money before conversion is taxable. That's at 5:57 in the video. The IRS explains how after-tax 401(k) money can be split between a Roth IRA and a traditional IRA in its page on rollovers of after-tax contributions.

The video uses 2024 numbers ($23,000 and $69,000). For 2026, use the table above.

What I'd do. Check your December 31 IRA balances before you do anything. If they're zero, the backdoor Roth is about as simple as tax strategies get: contribute, convert soon, and file Form 8606 every year. If they aren't zero, deal with that first, usually by rolling into a 401(k), or run the numbers and decide whether the tax bill is worth it.

And yeah, those are the basics. If something here doesn't match your situation, that's the time to talk to someone who can see your whole return, and here's how to find one.

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