How to Do a Backdoor Roth IRA Step by Step in 2026

If you earn too much to contribute directly to a Roth IRA, you have probably heard of the backdoor Roth IRA. The idea is simple. You contribute to a traditional IRA, which has no income limit for nondeductible contributions, and then you convert that money to a Roth IRA. Done correctly, the move costs little or no tax and gives you another bucket of money that grows tax-free and comes out tax-free in retirement.

The mechanics trip people up far more than the concept does. The pro-rata rule can turn a tax-free move into a taxable one if you have other pre-tax IRA balances. Form 8606 has to be filed correctly, or you can end up paying tax twice on the same dollars. This guide walks through each step, explains the pro-rata rule with real numbers, and shows what the reporting should look like. It is educational, not individualized advice, and reflects the rules for 2026.

Who the Backdoor Roth IRA Is For

Direct Roth IRA contributions phase out above certain income levels. For 2026 the phase-out begins at $153,000 of modified adjusted gross income for single filers and $242,000 for married couples filing jointly, and it ends a little above those figures. The IRS updates these thresholds every year, so confirm the current numbers on the IRS Roth IRA page before you act.

A nondeductible contribution to a traditional IRA has no income limit at all. Anyone with earned income can make one, up to the annual IRA limit, which is $7,500 for 2026 plus a catch-up amount if you are 50 or older. Roth conversions also have no income limit. Put those two facts together and you have the backdoor Roth IRA.

The strategy fits physicians, attorneys, executives, dual-income couples, and business owners who already max their workplace plan and want more tax-free growth.

When the backdoor Roth is not worth the trouble

The move loses most of its appeal if you hold a large pre-tax IRA balance you cannot move into a workplace plan. The pro-rata rule then makes most of the conversion taxable, and you are really doing a small regular Roth conversion, which our guide to Roth conversions covers. It also requires earned income for the year, although a non-working spouse can contribute through a spousal IRA if the working spouse's compensation covers both contributions.

The Backdoor Roth IRA Step by Step

The order matters. Each step below builds on the last, and the first one is the one people skip.

Step 1: Check every non-Roth IRA you own

Before you contribute a dollar, list every traditional IRA, rollover IRA, SEP IRA, and SIMPLE IRA in your name. Old 401(k) rollovers from a residency program or a prior employer are the usual surprise. If the combined balance is zero, you are clear. If not, read the pro-rata section below first, because the fix has to be in place by December 31 of the year you convert.

Step 2: Make a nondeductible contribution to a traditional IRA

Open a traditional IRA if needed and contribute up to the annual limit. Leave the money in the settlement fund rather than investing it, and do not claim a deduction for the contribution on your tax return. You will document the nondeductible contribution on Form 8606.

Step 3: Convert the balance to your Roth IRA

Once the deposit settles, usually within a few business days, request a conversion of the entire traditional IRA balance to your Roth IRA. Convert everything, including any pennies of interest, so the traditional IRA goes back to zero. There is no required waiting period. Congress addressed the step-transaction concern in the 2017 tax law conference report, and the IRS has followed that guidance since. Then invest the money inside the Roth according to your overall allocation.

Step 4: File Form 8606 with your tax return

Form 8606 reports the nondeductible contribution and the conversion. It is the paper trail that proves the conversion was not taxable. Details are in the reporting section below.

The Pro-Rata Rule Explained With Numbers

The IRS treats all of your non-Roth IRAs as one account for tax purposes. When you convert, you cannot choose to convert only the after-tax dollars. Each converted dollar carries the same ratio of after-tax basis to pre-tax money as your combined IRA balances.

The formula is straightforward. Divide your total after-tax basis by the sum of your IRA balances on December 31 plus any amounts you converted or distributed during the year. That percentage of the conversion is tax-free. The rest is taxed as ordinary income.

Here is an example. You contribute $7,500 after-tax to a new traditional IRA and convert it a week later. You also have a $92,500 rollover IRA from an old employer. Your total IRA money is $100,000, and your basis is $7,500, or 7.5 percent. Only $562.50 of the $7,500 conversion is tax-free. The other $6,937.50 is taxable, and the unused basis stays in your IRA for future years.

Two limits on the rule matter: workplace plans such as 401(k)s, 403(b)s, and 457(b)s are not counted, and each spouse is measured separately.

How to clear the pre-tax balance

The cleanest fix is a reverse rollover. Many employer 401(k) plans and most solo 401(k) plans accept incoming rollovers of pre-tax IRA money, which takes that balance out of the calculation. The rollover must be complete by December 31 of the year you convert. The second option is to convert the entire pre-tax balance and pay the tax now, which can make sense in a low-income year such as a sabbatical or the first year of retirement. The third is to accept partial taxability and carry the basis forward.

SEP and SIMPLE IRAs count too

Self-employed readers often hold a SEP IRA, and it is part of the calculation. Switching future contributions to a solo 401(k) and rolling the SEP into it solves the problem. SIMPLE IRAs count as well, but money cannot leave a SIMPLE IRA for a non-SIMPLE account during the first two years of participation without a steep penalty.

Reporting the Backdoor Roth on Form 8606

Form 8606 has two parts that matter here. Part I records the nondeductible contribution, your total basis from prior years, your year-end IRA balance, and the amount you converted. Part II calculates the taxable portion of the conversion. If you had no other IRA money and converted the full contribution promptly, the taxable amount is zero or a few dollars of earnings.

Your custodian will send two documents. Form 5498 reports the contribution. Form 1099-R reports the conversion as a distribution, usually with the full amount in box 2a and the taxable amount not determined box checked. That 1099-R is not wrong. Form 8606 is what tells the IRS how much of the distribution is actually taxable.

The most common error is entering the 1099-R into tax software without also entering the nondeductible contribution, so the software treats the whole conversion as taxable. The second is failing to carry prior-year basis forward, which often happens after a change of tax preparer. Keep a copy of every Form 8606 you have ever filed.

When the contribution and conversion fall in different years

Many people contribute for a prior tax year between January 1 and the April deadline, then convert right away. The Form 8606 for the contribution year reports the contribution and basis. The Form 8606 for the conversion year reports the conversion and uses that basis. Failing to file Form 8606 at all carries a $50 penalty, but the bigger cost is losing track of basis, which can make a later withdrawal fully taxable.

Timing, Earnings, and the Five-Year Rule

IRA contributions for a tax year can be made until the April filing deadline of the following year. Conversions are always taxed in the calendar year they occur. That is why many advisers suggest contributing and converting in January of the same year to keep the reporting simple.

Any earnings that build between contribution and conversion are taxable as ordinary income. Keeping the money in cash for the few days it sits in the traditional IRA keeps that figure near zero.

Converted amounts have their own five-year clock for the 10 percent early withdrawal penalty, but the penalty applies only to the taxable portion of a conversion. Since a clean backdoor Roth has almost no taxable portion, the converted dollars can be withdrawn without penalty if you truly need them. Earnings come out tax-free only after you reach 59 and a half and have held a Roth IRA for at least five years. Georgia follows federal treatment, so a conversion that is tax-free federally is tax-free at the state level too.

Common Backdoor Roth IRA Mistakes

Most problems come from small oversights rather than misunderstandings. These are the ones we see most often.

• Forgetting a rollover IRA from a former employer or a residency plan, then discovering the pro-rata rule at tax time.
• Converting before a reverse rollover into the 401(k) has fully cleared, so pre-tax money still sits in the IRA on December 31.
• Accidentally deducting the traditional IRA contribution, which makes the conversion taxable and creates a mismatch on Form 8606.
• Leaving the contribution uninvested inside the traditional IRA for months, which builds taxable earnings.
• Contributing without enough earned income, which creates an excess contribution and a 6 percent annual penalty until corrected.
• Assuming a couple can share one account. Each spouse needs a separate traditional IRA and Roth IRA.
• Trying to undo a conversion. Roth conversions cannot be recharacterized, although an IRA contribution itself can be before the filing deadline.
• Not filing Form 8606, or filing it without prior basis.

How the Backdoor Roth IRA Fits a Larger Tax Plan

The backdoor Roth adds a few thousand dollars a year of tax-free savings per person. That is meaningful over decades, but it is a supporting piece rather than the foundation. The first priority for most high earners is the full workplace plan contribution, which is $24,500 for 2026 before catch-up amounts, as detailed in our summary of retirement account limits for 2026. A health savings account, if you are eligible, is another strong option.

If your employer plan allows after-tax contributions and in-plan Roth conversions, a mega backdoor Roth can move far larger amounts into Roth status each year. Physicians with access to both a 403(b) and a 457(b) may find those plans absorb more savings first. Every one of these choices affects your current bracket, your future required minimum distributions, and eventually your Medicare premiums, which is why our tax planning service looks at them together.

The backdoor Roth IRA is a small, repeatable move that rewards attention to detail. Check your existing IRA balances, contribute without deducting, convert promptly, and file Form 8606 every year. Do that consistently and the strategy quietly builds a tax-free account that you and your heirs will be glad to have. If you are unsure whether the pro-rata rule applies to you, that is worth a conversation before the year ends rather than after.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend