Invest Insights

Backdoor Roth and Pro-Rata Rule: What the IRS Forms Actually Say

A backdoor Roth is a nondeductible IRA contribution followed by a conversion; Form 8606 decides how much is taxed, and other IRA balances change the answer.

Published by Greg M., Editor in Chief · Updated

“Backdoor Roth” isn’t an IRS term. It’s a nickname for two steps the rules allow separately: a nondeductible contribution to a traditional IRA, then a conversion of that money to a Roth IRA. People use it when their income is too high to contribute to a Roth directly. Whether the conversion is mostly tax-free or mostly taxable depends on a calculation on Form 8606, often called the pro-rata rule, and that calculation looks at more than the one account being converted.

This guide reads the rules from the IRS’s own publications and the form itself. It explains how the calculation works; it doesn’t suggest whether anyone should do it. The worked example uses invented figures. State tax treatment can differ.

Why the two-step exists: the 2026 income limits

A direct Roth contribution phases out with income. For the 2026 tax year, the IRS set the Roth phase-out at $153,000 to $168,000 of modified AGI for single filers and heads of household, and $242,000 to $252,000 for married couples filing jointly; the married-filing-separately range stays at $0 to $10,000 (IRS news release IR-2025-111, November 13, 2025, checked November 9, 2026). At or above the top of the range, no direct contribution is allowed.

Traditional IRAs have no income limit on contributing, only on deducting. IRS Publication 590-A says the deduction limits “don’t affect the amount that can be contributed,” so a person above the deduction range can still make a nondeductible contribution, up to the 2026 tax year limit of $7,500, or $8,600 at age 50 or older (IRS Pub 590-A (2025); IRS: IRA contribution limits, both checked November 9, 2026). Pub 590-A’s conversion section sets no income test: it says simply, “You can convert a traditional IRA to a Roth IRA.” It treats a conversion as a rollover and says converted amounts “are normally included in income on your return for the year that you converted them.” Part II of Form 8606 works out how much of a conversion is taxable.

One detail helps here: conversion income doesn’t count toward the Roth income limit itself. Pub 590-A’s modified AGI worksheet subtracts conversion income when working out Roth eligibility, though it warns not to subtract it when figuring other AGI-based phase-outs.

Step one: the nondeductible contribution and basis

A nondeductible contribution creates basis: after-tax money in a traditional IRA that won’t be taxed again when it comes out. Pub 590-A says you have a cost basis “if you made any nondeductible contributions,” and that nondeductible contributions require Form 8606. The form’s instructions add a $50 penalty for not filing it when required and a $100 penalty for overstating nondeductible contributions, unless there is reasonable cause (IRS Instructions for Form 8606 (2025), checked November 9, 2026).

Basis carries forward from year to year on line 14 of the form, which the 2025 Form 8606 describes as “your total basis in traditional IRAs for 2025 and earlier years” (IRS: 2025 Form 8606, checked November 9, 2026). Losing track of it can mean paying tax twice on the same money.

Step two: the conversion, and what Form 8606 asks

Here is how the 2025 Form 8606 works out the nontaxable part of a conversion, line by line. The 2026 form, when released, may renumber lines.

That is the pro-rata rule in practice. You can’t pick which dollars you convert. The form treats every conversion as carrying the same share of after-tax basis as your traditional IRAs as a whole, and it measures them at December 31, not on the day you convert. How the calculation applies depends on your situation; a tax professional can confirm it.

A worked example with invented figures

Take an invented person under 50 who makes a $7,500 nondeductible traditional IRA contribution for 2026 during 2026, has no basis from earlier years, and converts $7,500 to a Roth IRA later in 2026. To keep the arithmetic clean, assume no earnings between contribution and conversion and no other distributions.

Case A: no other traditional IRA money. At December 31 the traditional IRA balance is $0.

Case B: a $67,500 rollover IRA of pre-tax money from an old job, still there at December 31.

The same $7,500 conversion is fully nontaxable in Case A and 90% taxable in Case B. The basis isn’t lost in Case B: the $6,750 that wasn’t used stays on line 14 for future distributions or conversions. Any earnings converted along with the contribution would also be taxable.

Because line 6 uses the December 31 value, money rolled into a traditional IRA later in the year still counts, even if it arrived after the conversion. Line 6 asks only for traditional IRAs (including SEP and SIMPLE IRAs). The form doesn’t list balances in employer plans such as a 401(k) on that line. Line 6 also excludes an outstanding rollover from a traditional IRA into a qualified retirement plan. How particular accounts count is a question where a tax professional can confirm the treatment, since the result can change the tax owed.

Rules that limit the do-overs

Two more rules shape how this plays out.

A conversion can’t be undone. Pub 590-A says a conversion made in tax years after 2017 “cannot be recharacterized as having been made to a traditional IRA.” A regular contribution can still be recharacterized from one IRA type to the other by the due date of the return, including extensions, but once money is converted, the tax on the conversion stands.

Each conversion has its own five-year clock for the 10% additional tax. Publication 590-B says that if you take a Roth distribution within five years starting with the first day of the year of a conversion, you may owe the 10% additional tax on the part of the conversion that was included in income, and “a separate 5-year period applies to each conversion and rollover.” That clock can differ from the five-year period used to decide whether earnings come out tax-free (IRS Pub 590-B (2025), checked November 9, 2026). Using conversions to reach money before 59½ is early-retirement territory covered by MoneyMaster, not here.

What to keep for your records

The forms make clear what the IRS expects to see:

For the wider contribution rules, including deadlines and excess contributions, see IRA contribution rules. For the underlying choice between paying tax now or later, see Roth or traditional?.

Common questions

Is a backdoor Roth allowed by the IRS? The IRS doesn’t use the term. Its publications allow nondeductible traditional IRA contributions and allow conversions to a Roth IRA without an income limit, and Form 8606 sets out how each is reported. How the two steps apply to a particular situation is something a tax professional can confirm.

Why is part of my conversion taxable when I only converted my nondeductible contribution? Form 8606 doesn’t let you choose. It divides your total basis by the December 31 value of all your traditional IRAs plus distributions and conversions, and applies that fraction to the conversion.

Does converting count toward the Roth income limit? Not for Roth eligibility. Pub 590-A subtracts conversion income when figuring modified AGI for Roth purposes, but conversion income still counts for other AGI-based figures.

What if I realize a conversion was taxable after all? A conversion can’t be recharacterized after 2017. The taxable amount is reported as income for the year, and a tax professional can help review the Form 8606.

Sources checked November 9, 2026: IRS news release IR-2025-111; IRS: IRA contribution limits; IRS Publication 590-A (2025); IRS Publication 590-B (2025); IRS 2025 Form 8606; IRS Instructions for Form 8606 (2025).