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Backdoor Roth IRA
Since 2010· Concept or strategy
Depends on youExperts differ; the right answer depends on your situation.
A two-step route for high earners over the Roth income limit: make a nondeductible IRA contribution, then convert it.
See it on the Personal Finance & Estate map →How it works
Above $168,000 (single) or $252,000 (joint) in 2026 you can't contribute to a Roth IRA directly, but anyone with earned income can make a nondeductible traditional IRA contribution and convert it, since conversions have no income limit. Done cleanly, it moves $7,500 a year ($8,600 at 50+) into a Roth with little tax. Main trap: the pro-rata rule counts all your traditional, SEP and SIMPLE IRA balances, so pre-tax money makes much of the conversion taxable. File Form 8606 every year.
Why it matters for you
Depends on you: it is worth it mainly for high earners with no pre-tax IRA balances. Ask your CPA to check the pro-rata math first.
Rules, limits and sources (2026)
IRC Sec. 408(d)(2), the pro-rata rule; the 2017 tax-law conference report acknowledged the strategy; IRS Form 8606 instructions.
Watch out for
Congress proposed banning it in 2021; it survived, but whether it will be closed later remains open.
Connections (2)
▸Backdoor Roth IRA is a high-earner route into Roth IRAStandard practice
How they connect
Direct Roth IRA contributions phase out above $153,000 single or $242,000 joint income in 2026, but conversions have no income test. The backdoor uses that gap: a nondeductible traditional IRA contribution, converted soon after, lands in the Roth IRA with little or no tax.
When it applies
Possible since 2010, when conversion income limits ended; used yearly by high-earning employees and business owners.
How sure?
The 2017 tax law's conference report described the maneuver as permitted; IRS Form 8606 tracks basis and conversions.
Watch out for
How long to wait between steps is debated over step-transaction risk; most practitioners now see little audit exposure.
▸Backdoor Roth IRA is complicated by pre-tax balances in SEP IRA & SIMPLE IRA (small-business IRAs)Watch out
How they connect
The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one pot on December 31. A self-employed person with a $200,000 SEP IRA who converts a $7,500 nondeductible contribution owes tax on about 96% of it. The usual fix: roll the SEP into a solo or employer 401(k) first, if the plan accepts it.
When it applies
Commonly hits self-employed professionals and small-business owners who fund SEP or SIMPLE IRAs and also try the backdoor.
How sure?
IRC Sec. 408(d)(2) and IRS Form 8606 instructions, which include SEP and SIMPLE balances in the calculation.
Watch out for
Whether moving SEP money into a 401(k) just to clear the way is worth the hassle depends on you; ask your CPA.