If you earn too much to contribute directly to a Roth IRA, you're not out of luck. The backdoor Roth is a completely legal workaround that lets you get $7,500.00 into a Roth IRA every year regardless of your income (as long as you handle the pro-rata rule, which we'll cover below). It's been around for years and remains fully legal under current IRS rules.

The idea is simple: contribute to a traditional IRA (no income limit for non-deductible contributions), then convert that money to Roth. But there are a few things you need to get right, or you'll end up with an unexpected tax bill.

Roth IRA Income Limits (2026)

The IRS sets income limits on who can contribute directly to a Roth IRA. These are based on your Modified Adjusted Gross Income (MAGI):

The contribution limit itself is $7,500.00 per year ($8,600.00 if you're 50 or older). If you're in the phase-out range, you can contribute a reduced amount. Above the phase-out, you can't contribute directly at all.

Source: IRS - 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500

How the Backdoor Roth Works

There's no income limit on contributing to a traditional IRA. You won't get a tax deduction for it (that has its own income limits if you're covered by a workplace plan), but you can always make a non-deductible contribution. And there's no income limit on converting a traditional IRA to Roth. Put those two together:

1. Open a traditional IRA at your brokerage (Fidelity, Schwab, Vanguard, etc.) if you don't already have one.
2. Contribute $7,500.00 as a non-deductible contribution. Don't invest it yet. Leave it in the money market / settlement fund.
3. Convert the entire traditional IRA balance to Roth. Most brokerages let you do this online. At some you may need to call. This is the “backdoor” part.
4. Report on Form 8606 when you file your taxes. This tells the IRS the contribution was non-deductible, so the conversion isn't taxed.

If you contribute and convert quickly (same day or within a few days), there are little to no earnings in the account, so the conversion is essentially tax-free. Any small amount of earnings that accrued between contribution and conversion would be taxable, but we're usually talking cents.

Source: IRS - IRA FAQs: Rollovers and Roth Conversions, Schwab - Backdoor Roth: Is It Right for You?

The Pro-Rata Rule (This Is the Big One)

Here's where most people trip up. When you convert a traditional IRA to Roth, the IRS doesn't let you cherry-pick which dollars get converted. Instead, it looks at all of your traditional IRA balances across every account - traditional, rollover, SEP, and SIMPLE IRAs - and treats them as one pool.

The taxable percentage of your conversion is based on the ratio of pre-tax money to total IRA money, calculated as of December 31 of the year you convert.

Example: clean conversion (no pre-tax IRA money)

Pre-tax ratio: 0%. The entire $7,500.00 conversion is tax-free. This is the ideal scenario.

Example: messy conversion (existing pre-tax IRA money)

Pre-tax ratio: 92.5%. If you convert $7,500.00, then 92.5% of it ($6,937.00) is taxable income. Only $563.00 is tax-free. The backdoor is basically useless here.

This also means SEP IRAs and SIMPLE IRAs count against you. If you're self-employed and have a SEP IRA, that balance gets included in the pro-rata calculation. This is one of the biggest reasons to use a solo 401(k) instead of a SEP if you plan to do backdoor Roth conversions.

Source: IRS - Form 8606 Instructions (see “Line 6” for the aggregation rule)

A Few Things to Watch Out For

Don't forget Form 8606

This is the form that tells the IRS your traditional IRA contribution was non-deductible. If you skip it, the IRS assumes your contribution was deductible, and you'll get taxed on the conversion. File it every year you make a non-deductible contribution, even if you don't convert that same year.

Source: IRS - About Form 8606

Roth 5-year rules

There are actually two separate 5-year rules for Roth IRAs, and they cause a lot of confusion:

• 5-year rule for earnings: To withdraw earnings tax-free and penalty-free, your first Roth IRA contribution (or conversion) must have been at least 5 tax years ago, and you must be 59½ or older. This rule applies to the account overall, not per-conversion.
• 5-year rule for conversions (under 59½): Each conversion has its own 5-year clock. If you withdraw converted amounts within 5 years of that specific conversion and you're under 59½, you'll owe a 10% early withdrawal penalty on the converted amount (even though you already paid taxes on it, if applicable). After 59½ this rule doesn't apply.

For most people doing a backdoor Roth as a long-term retirement strategy, neither of these is a practical concern. You're contributing money you don't plan to touch for decades.

Source: IRS Publication 590-B - Distributions from IRAs, Fidelity - Tax Implications of Roth Conversions

Contribution deadlines

You can make IRA contributions for a given tax year up until the tax filing deadline (typically April 15 of the following year). So you could make your 2026 contribution as late as April 15, 2027. However, the pro-rata rule looks at your IRA balances on December 31 of the conversion year. If you contribute in January 2026 and convert immediately, the December 31, 2026 balance is what matters for the pro-rata calculation.

Most people find it simplest to do the contribution and conversion early in the year, in January, and get it out of the way.

Source: IRS - IRA Contribution Limits

State taxes

Some states don't follow federal tax treatment of Roth conversions. A few states may tax the conversion even if it's tax-free federally. Check your state's rules. (If you're in a state with no income tax, like Washington, Texas, or Florida, this isn't a concern.)

Backdoor Roth vs Mega Backdoor Roth

These are different strategies that often get confused:

They're not mutually exclusive. If your employer's 401(k) supports the mega backdoor Roth, you should do both: the backdoor Roth IRA for an easy $7,500.00, and the mega backdoor for the big dollars through your 401(k).

Your Checklist Before Starting

Before you do your first backdoor Roth, confirm:

• You have $0 in traditional, rollover, SEP, and SIMPLE IRA balances (or can roll them into a 401(k) before December 31)
• You understand that the contribution is non-deductible and will be reported on Form 8606
• You'll convert quickly after contributing to minimize taxable earnings
• You're okay with money being in a Roth (5-year rule on conversions if you're under 59½)

If all of that checks out, you're good to go. It takes about 15 minutes once a year.

Model It With Our 401k Optimizer

While our 401k optimizer focuses on 401(k) modeling, understanding the backdoor Roth is an important piece of your overall retirement savings strategy. Use it to optimize your 401(k) contributions, then layer the backdoor Roth IRA on top.