Answer (2026): A backdoor Roth is two steps: a nondeductible IRA contribution, then a Roth conversion. The pro-rata rule is the part that surprises people, because it looks at all traditional, SEP, and SIMPLE IRAs. Form 8606 is how you keep your basis straight.
Context: Best for high-income earners who are over Roth income limits and still want Roth space.
Action: Start with Tax Optimization, then run a Year-End Tax Projection to see bracket impact before converting.
Last reviewed: January 21, 2026.
- The pro-rata rule considers all traditional, SEP, and SIMPLE IRA balances, not just the new contribution.
- Form 8606 tracks nondeductible basis; skipping it creates long-term reporting risk.
- Contribution and conversion in the same tax year simplifies reporting.
- Employer plan rollovers can reduce conversion tax if the plan accepts rollovers.
- Backdoor Roth: A nondeductible IRA contribution that is later converted to Roth.
- Pro-rata rule: The IRS calculates taxable conversion amounts across all IRA balances, not just the contribution you converted.
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Inventory IRA balances. Include traditional, SEP, and SIMPLE IRA balances for the pro-rata calculation.
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Check rollover options. If pre-tax balances are material, evaluate whether your employer plan accepts rollovers.
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Make a nondeductible contribution. Record the basis for Form 8606.
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Convert to Roth. Keep confirmation statements for your records.
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File Form 8606. This is the audit trail that prevents double taxation.
The taxable portion is based on the ratio of pre-tax IRA money to total IRA money, not just the new contribution. If you already have a pre-tax IRA balance, most of the conversion may be taxable even when the contribution itself was nondeductible. That is the common surprise.
| IRA balances (pre-tax) | Nondeductible contribution | Taxable portion of conversion |
|---|
| $0 | $7,000 | 0% |
| $93,000 | $7,000 | ~93% |
A W-2 executive has a large traditional IRA from an old rollover. They move that balance into their current employer plan, then complete the nondeductible contribution and conversion with a much smaller tax bill.
- Do you have any pre-tax IRA balances that trigger the pro-rata rule?
- Does your employer plan accept rollovers, and what is the timeline?
- Are you planning any other IRA distributions or conversions this year?
- Do you have cash outside the IRA to cover conversion taxes if needed?
- Can you file Form 8606 accurately this year?
- Should we move pre-tax IRA money into a plan before converting?
- What is the marginal bracket impact this year vs next year?
- How should we track basis across years if we repeat this annually?
Run a Year-End Tax Projection to see bracket impact, then coordinate the rollover and Form 8606 steps with a qualified professional.
This guide is for planning and coordination only. It does not provide tax, legal, or investment advice. Confirm eligibility, timing, and reporting with a qualified professional.
