What is a Backdoor Roth?
A Backdoor Roth is a two-step workaround that lets high earners move money into a Roth IRA even when their income exceeds the direct-contribution limit. Step one: make a non-deductible contribution to a Traditional IRA, which has no income cap. Step two: convert that Traditional IRA balance to a Roth IRA.
It is called a backdoor because it is not a single product or account type. The IRS does not publish a Backdoor Roth form. It is simply a legal sequence of two standard operations that, together, bypass the Roth IRA income phase-out.
How it works
- Contribute to a Traditional IRA: up to the annual IRA contribution limit. Because your income is too high to deduct the contribution, it goes in as a non-deductible contribution (you pay tax on the money now, and the basis is tracked so you are not taxed on it again).
- Wait briefly: many practitioners leave the money in cash for a few days so that any investment gain between steps is negligible. The money does not need to sit; the two steps can be same-day at most brokers.
- Convert to Roth IRA: initiate a conversion from the Traditional IRA to a Roth IRA. This is a standard, taxable event in most cases, but because the contribution was non-deductible, only any investment gains between steps are taxable. If the conversion happens before the money earns anything, the tax hit is effectively zero.
- Report on Form 8606: required to document the non-deductible contribution and the conversion so the IRS sees the basis and does not double-tax it.
The pro rata trap
The single biggest gotcha with the Backdoor Roth is the pro rata rule. When you convert, the IRS looks at all your Traditional, SEP, and SIMPLE IRA balances combined and treats the conversion as proportionally sourced from each. If you have a pre-tax Traditional IRA balance from an old 401(k) rollover, converting the new non-deductible contribution will pull a proportional slice of that pre-tax money across as taxable income.
Workarounds:
- Reverse rollover: move existing pre-tax IRA money into a current employer 401(k) (if the plan allows incoming rollovers). This empties out the IRA side for pro rata purposes
- Do the conversion in a year with no other IRA balance: possible for someone who has only ever saved in employer 401(k) plans and never rolled one to an IRA
- Accept the partial tax hit: if the pro rata bleed is small, sometimes it is worth it
Mega Backdoor Roth
A separate strategy with a similar name. If your employer 401(k) allows after-tax contributions beyond the standard employee deferral limit, plus in-service Roth conversions or in-plan Roth rollovers, you can contribute tens of thousands of extra dollars per year and immediately roll them into Roth money inside the 401(k) or to a Roth IRA. Plan-dependent and not widely available, but powerful when available.
Who it is for
- High earners phased out of direct Roth IRA contributions who want tax-free growth
- Investors with little or no existing pre-tax IRA balance (to avoid pro rata)
- Anyone who can tolerate the extra paperwork (Form 8606 each year)
The Backdoor Roth is legal, well-established, and the standard move for high earners who want Roth treatment. The pro rata rule is the piece most people get wrong, so map your existing IRA balances before starting.