Backdoor Roth IRA allows high earners to bypass income limits and enjoy tax-free retirement growth. Start your Backdoor Roth IRA today with the guide below!
What is a Backdoor Roth IRA?
A Backdoor Roth IRA is a strategy for high-income earners to contribute to Roth IRA indirectly by using a Traditional IRA first.
Step 1: Clear Other IRA Balances (Avoid Pro-Rata Rule)
Move all pre-tax IRA funds to a 401(k) or Individual 401(k) to avoid the Pro-Rata Rule, which taxes conversions proportionally. If you have pre-tax balances in other IRAs, the IRS will consider your total IRA balance in determining how much of your Roth conversion is taxable.
What is the Pro-Rata Rule?
The Pro-Rata Rule requires you to calculate the ratio of pre-tax and after-tax money across all IRA accounts. The taxable portion of your Roth IRA conversion is determined based on this ratio.
Formula:
Taxable Amount = (Pre-tax IRA Balance ÷ Total IRA Balance) × Amount Converted
Example:
Total IRA balance = $36,500 (Pre-tax $20,000, After-tax $16,500)
Converted amount = $6,500
Taxable amount = $6,500 × (20,000 ÷ 36,500) ≈ $3,562
You will owe ordinary income tax on the $3,562 portion.
Income Tax Rate?
The taxable amount is considered ordinary income. So, it is taxed according to your federal income tax bracket. Check tax bracket in 2025 below.
| Income Range (Married Filing Jointly) | Tax Rate |
|---|---|
| $0 – $23,800 | 10% |
| $23,801 – $95,000 | 12% |
| $95,001 – $202,000 | 22% |
| $202,001 – $391,000 | 24% |
| $391,001 – $490,000 | 32% |
| $490,001 – $735,000 | 35% |
| $735,001 and above | 37% |
Step 2: Make a Non-Deductible Contribution
In 2025, contribute $6,500 (or $7,500 if age 50 or older) after-tax to a Traditional IRA. This contribution is not tax-deductible but allows you to execute a tax-efficient Roth conversion.
Step 3: Convert to Roth IRA
Quickly convert the amount to Roth IRA. If both accounts are at the same financial institution, it can be done online easily. Select “No Tax Withholding” during the conversion process to avoid losing a portion of the funds to premature tax payment.
Step 4: File IRS Form 8606
You must file IRS Form 8606 to report your non-deductible IRA contribution and the Roth conversion. This prevents double taxation on your after-tax contributions.
Step 5: Repeat Annually
Repeat this strategy every year:
- Make a non-deductible contribution early in the year
- Convert to Roth IRA immediately
- File Form 8606 with your tax return
| Step | Action |
|---|---|
| 1 | Check IRA accounts & avoid Pro-Rata Rule |
| 2 | Make after-tax contribution to Traditional IRA |
| 3 | Convert to Roth IRA (ASAP) |
| 4 | File IRS Form 8606 |
| 5 | Repeat annually |
Final Tips
- Move all pre-tax IRA funds to a 401(k) or Individual 401(k) to avoid Pro-Rata Rule
- Don't split contributions across months — do it in one lump sum
- Avoid delayed conversions to keep the strategy clean
- Always file Form 8606
- Choose financial institutions that support direct rollovers (Fidelity, Schwab, eTrade)
