The Backdoor Roth Works — Unless One Old IRA Balance Wrecks It

01 The income wall on Roth contributions

The backdoor Roth exists because of a mismatch in the rules. Roth IRA contributions phase out above an income threshold, but Roth conversions have had no income limit at all since 2010.

So the manoeuvre is two ordinary steps performed in sequence. Contribute to a traditional IRA as a non-deductible contribution, which anyone with earned income may do regardless of income. Then convert that traditional IRA to a Roth IRA. Nothing about either step is unusual; it is the combination that reaches an account you could not contribute to directly.

Because the contribution was made with after-tax money, the conversion is tax-free — assuming no pre-tax IRA balances exist, which is the condition the pro-rata rule enforces and the reason most backdoor Roths go wrong.

It is not a loophole in the pejorative sense. Congress removed the conversion income limit deliberately, the strategy has been openly used and reported ever since, and it is simply two permitted transactions performed consecutively.

The amount is modest — $7,000 in 2025, or $8,000 from age 50 — which is why the mega backdoor covered later matters more for high earners with the right plan. But $7,000 a year of tax-free growth compounds substantially over a career, and it is available to anyone with earned income however high.

Direct Roth IRA contributions phase out once your income crosses a limit, and high earners are shut out entirely. For 2025, married couples filing jointly lose the ability to contribute directly between $236,000 and $246,000 of modified adjusted gross income; single filers phase out between $150,000 and $165,000. Above the top of the band, your allowed direct Roth contribution is $0.

At ~$280,000 MFJ, Maya and I are well past the ceiling. What the income wall does not block is a traditional IRA contribution (there's no income limit on contributing, only on deducting) or a Roth conversion (no income limit at all). The backdoor stitches those two facts together.

Source: IRS — Amount of Roth IRA contributions you can make for 2025

02 The two-step backdoor

A backdoor Roth is two transactions: a non-deductible contribution to a traditional IRA, then a conversion of that IRA to Roth. Because you already paid tax on the money you contributed, converting it adds no new income — only any earnings between the contribution and the conversion are taxable, which is why converting promptly keeps the tax near zero.

1. Contribute non-deductibly — put up to $7,000 ($8,000 if 50+) into a traditional IRA for 2025 and don't claim a deduction.
2. Convert to Roth — move that balance to a Roth IRA. With no other pre-tax IRA money, the taxable amount is just the few dollars of interest it earned.

The catch lives between those two steps, in a rule that looks at every IRA you own at once.

Source: IRS Publication 590-A

03 Worked example: the pro-rata trap

The pro-rata rule taxes a conversion in proportion to how much of your total IRA money is pre-tax. The IRS treats all your traditional, SEP, and SIMPLE IRAs as one pool on December 31, so you cannot convert "just the after-tax dollars." Maya's pool is $0 pre-tax, so her $7,000 conversion is essentially 100% tax-free. Change the pre-tax balance below to see how fast that flips.

Run a $93,000 pre-tax balance against a $7,000 contribution and the bar swings hard: 93% taxable, about $1,560 in federal tax at the 24% bracket — for a move people describe as "tax-free." The fix isn't to abandon the backdoor; it's to empty the pre-tax pool first.

On the defaults above, the worked example shows: Clean slate: with $0 pre-tax IRA money, the whole conversion is tax-free.

04 Clear the runway: roll pre-tax IRA into a 401(k)

The pro-rata rule is what turns a clean backdoor Roth into a partly taxable one, and it catches people who did everything else correctly.

The IRS does not let you convert only the after-tax dollars. It treats all your traditional, SEP and SIMPLE IRAs as a single pool and taxes the conversion in proportion to how much of that pool is pre-tax. A $7,000 conversion made alongside $93,000 of existing pre-tax IRA money is 93% taxable, however carefully the $7,000 was contributed after tax.

The measurement date is 31 December of the conversion year, not the date of the conversion — so a rollover done in November still counts against you for a conversion done in March of the same year.

The standard fix is the reverse rollover: move the pre-tax IRA balances into a current employer's 401(k), which is excluded from the calculation because only IRAs are counted. Once the IRA side is empty at year end, the conversion is clean. Not every plan accepts incoming rollovers, so this is worth confirming before contributing rather than after.

Two balances people forget to count: an old SEP IRA from a period of self-employment, and a SIMPLE IRA from a small employer. Both are included in the pool. A rollover IRA from a previous 401(k) is the most common culprit of all, because it feels like plan money rather than IRA money.

If the pre-tax balance cannot be moved, the honest conclusion is that the backdoor is not available to you this year — and the mega backdoor, which never touches an IRA, is the route that still works.

The cleanest way to beat the pro-rata rule is to remove pre-tax IRA money from the pool entirely, because only IRAs are aggregated — 401(k) and 403(b) balances are not. If your employer plan (or a solo 401(k), as in Maya's case) accepts incoming rollovers, you can move the pre-tax IRA into it before December 31, dropping your year-end pre-tax IRA balance to $0.

The other paths are worse for most people: convert the entire pre-tax balance to Roth (a big tax bill now), or simply accept partial taxation (you do the backdoor anyway and pay pro-rata tax each year). The rollover-into-401(k) route is the only one that restores a genuinely tax-free backdoor.

Source: IRS Publication 590-A

05 Form 8606 — the step I forgot

Form 8606 is what tells the IRS your contribution was after-tax, and skipping it costs real money.

In 2014, my first year doing a backdoor Roth after moving back to the US, I made the contribution and the conversion correctly — and never filed the 8606. My tax software treated the conversion as fully taxable because nothing on the return said otherwise, and I paid tax on money that had already been taxed once.

A missing 8606 can be filed late, and it usually should be — the form can be submitted on its own for a prior year. Unrecorded basis, by contrast, compounds: it is carried forward on the form itself, so a missing year breaks the chain and every subsequent conversion inherits the error.

Two practical checks. Confirm your tax software actually produced the form rather than assuming it did; the conversion appears on the 1099-R as fully taxable and it is the 8606 that corrects it. And keep every year's copy permanently, because the basis it tracks may not be drawn on for thirty years.

Source: IRS — About Form 8606, Nondeductible IRAs

06 The mega backdoor Roth: the bigger door

The mega backdoor Roth is a separate and much larger move that runs inside a 401(k) rather than an IRA.

After maxing your regular elective deferral — $23,500 in 2025 — some plans permit after-tax (not Roth) contributions up to the overall section 415(c) limit of $70,000, which counts employee deferrals, employer contributions and after-tax money together. The after-tax portion is then converted to Roth.

Done properly it moves tens of thousands a year into Roth, against the $7,000 the regular backdoor allows. For a high earner whose employer contribution is modest, the room can be $30,000 or more annually.

It only works if the plan allows after-tax contributions and either in-plan Roth conversions or in-service withdrawals. Many plans allow neither, and there is no workaround — so check the plan document before building a strategy around it.

The two stack rather than compete: a high earner with the right plan can do the $7,000 IRA backdoor and the mega backdoor in the same year. And the mega backdoor is unaffected by the pro-rata rule, because it never touches an IRA — which makes it the cleaner of the two for anyone carrying pre-tax IRA balances they cannot easily move.

Convert promptly once contributed. Earnings accrued between the after-tax contribution and the conversion are taxable, so a plan offering automatic same-day conversion is worth considerably more than one converting annually.

Source: IRS — Retirement topics: contribution limits