Backdoor Roth IRA
Priced out of the Roth IRA by the $161k / $240k phaseout? You're not. The backdoor takes two steps and one form, and the calc below tells you the tax bill before you file. Pro-rata rule included.
Free, no signup, runs in your browser · IRC §408(d)(2), §408A, §219(b), Form 8606 references inline
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Enter your pre-tax IRA balance, this year's nondeductible contribution, and your marginal rate. The calc applies §408(d)(2) — the pro-rata rule — and shows the tax bill on your Roth conversion plus the long-run projection.
Net Roth landing after tax
$7,000
Taxable slice
$0 (0%)
Tax owed
$0
The pro-rata formula: taxable fraction = pre_tax / (pre_tax + nondeductible basis). With $7,000 across all traditional IRAs, 100% of every converted dollar is treated as return of basis.
Projected Roth balance in 25 years
$442,743
Total contributed
$175,000
Tax-free growth
$267,743
Assumes you repeat the backdoor each year and the pre-tax balance stays where it is. Growth compounds at 7%. Rough figure — for planning, not for filing.
Direct Roth IRA contributions phase out between $150k and $165k for single filers and $236k to $246k for joint in 2025. Cross the ceiling and you're locked out of the front door. The backdoor is a two-step: contribute nondeductible to a traditional IRA (no income limit under §219), then convert to Roth (no income limit under §408A(c)(3)(B) since 2010). Same $7,000 lands, same Roth wrapper, extra paperwork.
IRC §408(d)(2) aggregates every traditional, SEP, and SIMPLE IRA you hold as if they're one bucket. Convert $7,000 while sitting on a $93,000 rollover IRA and only 7% of the conversion is basis — the other 93% is ordinary income for the year. The calc above shows the split before you commit.
You file it in the year you contribute nondeductible and again in the year you convert. Skip it and the IRS treats your basis as zero — meaning you pay ordinary tax on money you already paid tax on. Every year without Form 8606 is a small, avoidable erosion of the basis you're carrying forward.
It's a workaround for a cap. Congress capped who can contribute directly to a Roth IRA — for 2025, the door slams shut above $161,000 MAGI single and $240,000 joint. But there's no cap on two adjacent moves: contributing nondeductible dollars to a traditional IRA, and converting a traditional IRA to Roth. Do them in sequence and you land in a Roth wrapper by the back door.
The cap-removal on conversions happened in 2010. Before that, Roth conversions had their own $100,000 income ceiling, which made this play impossible for the high earners who most wanted it. The Tax Increase Prevention and Reconciliation Act of 2005 killed that ceiling effective 2010, and the backdoor has been open since. Fifteen years and counting, with the IRS explicitly acknowledging the play in the 2018 conference report.
What you're not doing: some clever loophole, some regulatory arbitrage, some grey area. The IRS calls it a valid two-step transaction. Your CPA won't blink. The paperwork is one page (Form 8606) and it takes 20 minutes.
Here's how it goes, in order.
Here's the wrinkle nobody warned you about. §408(d)(2)(A) says when you distribute or convert from any traditional IRA, you have to treat every traditional, SEP, and SIMPLE IRA you own as if it's one pot. You can't cherry-pick and say "this particular $7,000 was my nondeductible contribution." The IRS makes you slice pro-rata.
Concrete example. You've got a $93,000 rollover IRA from an old 401(k). You contribute $7,000 nondeductible this year. Total traditional IRA balance: $100,000. Basis fraction: 7%. When you convert $7,000 to Roth, only $490 (7% × $7,000) is treated as basis coming back. The other $6,510 is ordinary income for the year. At a 32% marginal rate that's $2,083 of tax on a play that was supposed to be tax-neutral.
Worse, the $6,510 of basis you didn't use doesn't get erased — it stays as basis in the traditional IRA and pro-rates out over future distributions. So you've paid tax on money that's still nondeductible, and you'll get the basis back a nickel at a time over the next 30 years. It's not disaster; it's just annoying math for something that should've been clean.
The fix: get the pre-tax IRA balance to $0 before December 31. Two ways.
Every CPA in April sees the same three. If you're reading this before you file, you can dodge all of them.
TurboTax doesn't force it. If you contributed nondeductible and didn't tell it, it won't ask. Now you're on record with the IRS as having $0 basis, and next year's conversion gets taxed as if the whole thing were pre-tax. You can file a late 8606 separately — it doesn't need to be attached to a 1040 — but you'll owe a $50 penalty per year missed and you'll need the statements to reconstruct the basis history. Do it in the year it happens.
IRA contributions have a April-15 deadline — you can contribute for 2024 up to April 15, 2025. But conversions are reported in the calendar year they happen. So if you contribute for 2024 in March 2025 and then convert in April 2025, the contribution is a 2024 event and the conversion is a 2025 event. Two separate 8606s in two different tax years, and if the trad IRA has any earnings when you convert, pro-rata bites. Do the contribution and the conversion in the same calendar year and the paperwork stays clean.
Every reader who did a stretch of 1099 work and funded a SEP along the way. That SEP is a pre-tax IRA balance for pro-rata purposes. Same story for SIMPLE-IRAs. You can't conveniently forget them; the custodian reports the year-end balance on Form 5498 and the IRS cross-checks against your 8606. If you're carrying a SEP balance from a side-gig year, roll it into your 401(k) or convert it before doing another backdoor.
The backdoor Roth is a lever for a specific person: high income (above the direct Roth phaseout), no meaningful pre-tax IRA balance, cash flow to spare after maxing the 401(k). If all three describe you, the play is close to free money — a $7,000 Roth contribution that compounds tax-free forever, for the cost of one form and 20 minutes.
If any of the three is off, the calculus changes. If you're below the phaseout, just contribute directly and skip the paperwork. If you have a $200k rollover IRA that you can't move into a 401(k), the pro-rata bite likely erases the benefit — pencil out the tax cost first. If you're not maxing the 401(k), do that first, because the 401(k) elective deferral is a $23,500 lever and the backdoor is a $7,000 lever.
There's also the future-rate question. If you're convinced your marginal rate in retirement will be materially lower than today's, the answer isn't "skip the backdoor," it's "stop worrying about Roth-vs-pre-tax at the margin." The direct Roth is closed to you either way. The backdoor is Roth-vs-taxable, and Roth wins on the wrapper every time because there's no annual dividend drag and no forced distribution at 73.
The backdoor Roth is a $7,000 lever. It's not going to move your net worth by itself. But strung together over 20 years with 7% real returns, it's about $300k of tax-free retirement money for someone who otherwise would've been stuck at the taxable-brokerage rate. Over 30 years the same play is closer to $700k. The math likes tax-advantaged wrappers held for a long time.
The reason a consolidated view helps here isn't the contribution decision — it's the basis tracking. You're carrying a Form 8606 basis figure forward for the rest of your life. Miss one filing, lose one statement, switch custodians and drop the paper trail — and you've handed the IRS an argument that the basis is zero. That's a real, avoidable leak. wlthy reads the account balances, tags conversion events, and keeps Line 14 up to date so the audit trail doesn't die when you switch brokerages.
Sources referenced
IRC §219(b), §408(d)(2), §408A(c)(3)(B), §408A(d)(3)(F); IRS Form 8606 instructions; IRS Notice 2024-80 (2025 dollar limits); Tax Increase Prevention and Reconciliation Act of 2005; TCJA 2018 conference report. Educational only — consult a tax adviser for filing decisions.
The classic case: modified AGI above the phaseout, no existing pre-tax trad IRA, cash flow to spare. You contribute $7,000 nondeductible, wait a day or a week, convert. Net cost is a stamp and 20 minutes of TurboTax the following April. This is where the backdoor pays most cleanly.
SEPs and SIMPLEs count as pre-tax IRA balance for pro-rata purposes. If you funded a SEP during a 1099 stretch and switched back to W-2, that balance is still sitting there sabotaging your backdoor conversion. Options: roll it to your current 401(k) if the plan accepts inbound rollovers, or convert the whole thing and take the tax hit in a single low-income year.
Roth conversions have a five-year clock per §408A(d)(3)(F). Every $7,000 you push through the backdoor now is another $7,000 of tax-free withdrawal room available five years from today. If the plan is to exit a company at 45 and live off the portfolio, the Roth bridge you built through the backdoor is what carries you until age 59½.
For 2025 the direct Roth IRA contribution phaseout runs $150,000 to $165,000 for single filers and $236,000 to $246,000 for married filing jointly, based on modified adjusted gross income. Above the top of the range, you can't contribute a dollar directly. That's exactly the audience the backdoor Roth serves — the income limit only applies to direct contributions. The workaround (contribute nondeductible to a traditional IRA, then convert) has no income cap since the Tax Increase Prevention Act of 2005 removed the $100k Roth conversion ceiling in 2010.
No. That's folk wisdom, not law. There's no waiting period in the IRC. The step-transaction doctrine doesn't apply here either — the IRS explicitly blessed the pattern in the 2018 Tax Cuts and Jobs Act conference report, saying the two steps are separately permissible and combining them doesn't change the tax result. Most practitioners still wait a business day or two just so the trades settle cleanly, but if you contribute Monday and convert Tuesday you're fine.
Part I of Form 8606 tracks nondeductible contributions and total basis in traditional IRAs. Part II tracks Roth conversions. You file it with your 1040 in every year that either happens. The critical field is Line 14, your cumulative basis carryforward — it's what tells the IRS how much of a future conversion is already-taxed money. If you don't file 8606, that basis defaults to zero and you'll pay ordinary income tax on the same dollar twice. The IRS charges a $50 penalty per missing form, but the real cost is the lost basis.
The pro-rata rule at §408(d)(2) only aggregates IRAs. 401(k) balances are invisible to it. So if you're sitting on a $200k rollover IRA that's ruining your backdoor Roth, the fix is to roll that money into your current employer's 401(k). Not every 401(k) accepts inbound rollovers — you have to check the plan document. If yours does, the IRA balance goes to zero, and next year's backdoor conversion runs tax-free. Time the rollover so the trad IRA is empty on December 31, because pro-rata is measured at year-end.
Inherited IRAs are treated separately under §408(d)(3)(C) and don't aggregate with your own traditional IRAs for pro-rata purposes. You have your own basis and your own conversion math; the inherited IRA sits in its own bucket with its own RMD schedule. Roth conversions from an inherited traditional IRA aren't allowed at all if it's an inherited-non-spouse account, so the question rarely comes up in practice. A spousal beneficiary who's rolled the inherited IRA into their own name — different story, it's now their IRA and does aggregate.
The backdoor Roth moves $7,000 to $8,000 a year through a nondeductible traditional IRA. The mega backdoor moves roughly $30,000 to $46,500 a year through the 401(k)'s after-tax bucket. The mega version requires your employer's plan to permit after-tax contributions and in-service conversions, which about 60% of Fortune 500 plans do. Both end in Roth. The mega version isn't touched by IRA pro-rata because the whole mechanic sits inside the 401(k). If your plan supports both, you'd typically do both — the backdoor fills the IRA side, the mega fills the 401(k) side.
The classic Roth-vs-traditional debate. If your marginal rate in retirement will be materially lower than today's, pre-tax is mathematically better. But the backdoor Roth question is different — the alternative isn't pre-tax, it's a taxable brokerage account. Direct Roth contributions are already gone (that's why you're doing this), and pre-tax deductibility phases out for active participants at low income. So the real comparison is Roth vs taxable, and Roth almost always wins because the wrapper compounds tax-free and there's no mandatory distribution at 73.
wlthy holds one number: cumulative Roth basis across every account. Backdoor conversions move money across IRA boundaries, and Form 8606 basis carries forward every year — miss a filing or lose a statement and you've lost the basis trail. wlthy aggregates the traditional IRA, Roth IRA, 401(k), and everything else into one dashboard, tags conversion events, and keeps a running Line-14 figure so April doesn't turn into an archaeology exercise.
wlthy adds up the traditional IRA, Roth IRA, 401(k), and taxable brokerage into one view — and tags backdoor conversions so the Line-14 basis carries forward automatically.
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