The backdoor Roth and the pro rata rule

How it works

There is no income limit on making a nondeductible traditional IRA contribution, and there is no income limit on converting a traditional IRA to a Roth. Put together, a person above the Roth lines can contribute up to $7,500 (2026, verified on the official page) to a traditional IRA, report it as nondeductible on Form 8606, and convert it. The conversion is taxed only on the pretax portion, and that is where the pro rata rule applies: the IRS treats all of a person's traditional, SEP, and SIMPLE IRAs as one pool on December 31, and the taxable share of any conversion is the pretax share of the whole pool, not of the single account converted. A large old rollover IRA therefore makes most of the conversion taxable. Where a workplace plan accepts rollovers, pretax IRA money can be moved there first, which empties the pool.

What it gives

It lets a high earner fund a Roth IRA every year within the written rules.

When the IRA pool holds no pretax money, the conversion is nearly tax free.

The conversion can happen within days, so earnings before conversion are tiny.

What it costs, or where the catch is

Any pretax IRA balance anywhere makes a large share of the conversion taxable.

Form 8606 has to be filed each year, and errors lead to tax on money already taxed.

Each spouse is tested separately, so one spouse's rollover IRA does not affect the other's conversion.

A worked example

Walt earns $210,000 and makes a $6,000 nondeductible contribution, then converts it. He also holds a $54,000 rollover IRA that is all pretax. His pool is $60,000, of which $6,000, or 10 percent, is after tax, so only 10 percent of the $6,000 conversion, $600, is tax free, and $5,400 is taxed as income. Had the rollover IRA been moved into his 401(k) first, the full $6,000 would have converted with almost no tax.

Where it goes wrong

The common miss is converting while holding a rollover IRA from an old job, and learning at tax time that most of the conversion was taxable.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: About Form 8606, Nondeductible IRAs. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.