The Backdoor Roth: How It Works and the Pro-Rata Trap
Two simple steps, one rule that can make the whole thing expensive.
At a glance
Figures checked 1 Sep 2026
What to take away
- Contribute non-deductible to a traditional IRA, then convert to Roth.
- The pro-rata rule looks at all your traditional, SEP and SIMPLE IRA balances as one pot.
- File Form 8606 every year you do it, or the basis is lost.
High earners cannot contribute to a Roth IRA directly. They can contribute to a traditional IRA on a non-deductible basis, and there is no income limit on Roth conversions. Doing both achieves the same result.
The pro-rata rule
The IRS treats all your traditional, SEP and SIMPLE IRAs as a single account when calculating the taxable portion of a conversion. If you hold $93,000 of pre-tax IRA money and convert a $7,500 non-deductible contribution, most of the conversion is taxable — you cannot choose to convert only the after-tax portion.
One common fix is rolling pre-tax IRA balances into an employer 401(k), which is excluded from the pro-rata calculation. Whether your plan accepts incoming rollovers decides whether this is available to you.
Getting the paperwork right
Form 8606 reports the non-deductible contribution and the conversion. Without it the IRS has no record of your basis and you risk paying tax twice on the same money. This is the step to check with a tax professional the first time.
Common questions
Conversions with no income limit are explicit in the tax code, and the strategy has been widely used and reported for years. It has periodically been proposed for restriction, which is worth watching.
That is a different route using after-tax 401(k) contributions and in-plan conversions, available only if your plan permits both.