Before you start: understand the pro-rata rule
The Pro-Rata Trap
What it means
The IRS counts ALL your pre-tax IRA money when you convert to Roth
Example problem
If you have $95,000 in pre-tax Traditional IRA + $5,000 non-deductible contribution, converting the $5,000 is 95% taxable
The solution
Roll existing Traditional IRA funds into your 401(k) first to isolate the non-deductible basis
Step-by-step process
Check for existing Traditional IRA balances
Include SEP-IRAs and SIMPLE IRAs in this calculation
Clear out pre-tax IRA money (if any)
Roll into your 401(k) if plan allows, or accept pro-rata tax consequences
Make non-deductible Traditional IRA contribution
Up to annual limit ($7,000 in 2024, $8,000 if 50+)
Wait for funds to settle
Administrative requirement, most convert within days
Convert Traditional IRA to Roth IRA
Pay taxes on any gains since contribution
File Form 8606
Document non-deductible basis and conversion for tax reporting
Invest the Roth IRA funds
Implement your long-term asset allocation strategy
Income limits that trigger backdoor need
| Filing Status | 2024 Phase-out Range | Complete Phase-out |
|---|---|---|
| Single | $138,000 - $153,000 | $153,000+ |
| Married Filing Jointly | $218,000 - $228,000 | $228,000+ |
| Married Filing Separately | $0 - $10,000 | $10,000+ |
Form 8606 requirements
Critical Tax Reporting
Part I: Non-deductible contributions
Report your non-deductible Traditional IRA contribution
Part II: Roth conversions
Report the conversion and calculate taxable amount
Keep detailed records
Save all forms, statements, and conversion documentation
Common pitfalls
⚠️ Mistakes That Cost Money
- • Having existing pre-tax IRA balances: Creates pro-rata taxation surprise
- • Forgetting Form 8606: IRS may double-tax your contribution
- • Large time gap before conversion: Creates unnecessary taxable gains
- • Not coordinating with spouse: Each spouse needs their own IRA and process
- • Assuming it's always worth it: Consider current vs future tax rates
Mega backdoor Roth (advanced strategy)
Separate Workplace Strategy
Requirements
401(k) allows after-tax contributions AND in-service withdrawals or in-plan Roth conversions
Massive contribution potential
Total 401(k) limit is $69,000 (2024), minus employer match and regular contributions
Process
Contribute after-tax dollars to 401(k), immediately convert to Roth 401(k) or roll to Roth IRA
Tax implications and timing
When to Execute
Early in the year to maximize growth time in Roth
January 1st contribution for previous tax year if possible
Convert quickly to minimize taxable gains
Tax Planning Considerations
Conversion counts as income for the year
May affect ACA premium tax credits if income is near thresholds
Could push you into higher tax bracket if timing isn't managed
Practical example
Real-World Scenario
Situation
High earner with $250,000 AGI, wants Roth IRA access
January Actions
- • Contribute $7,000 to non-deductible Traditional IRA
- • Wait 2-3 days for settlement
- • Convert entire $7,000 to Roth IRA
- • Invest in target allocation
Tax Season
File Form 8606 showing $7,000 non-deductible basis, $0 taxable conversion (assuming no gains)
Result
$7,000 in Roth IRA growing tax-free, no additional taxes owed
💡 Pro Tips
- • Automate the process: Set up annual contributions and conversions
- • Don't overthink timing: A few dollars of gains on conversion won't matter long-term
- • Consider tax software: Most platforms handle Form 8606 automatically
- • Both spouses can do this: Double your annual Roth IRA access
Frequently Asked Questions
Is there a Canada equivalent to backdoor Roth?
No, Canada doesn't have income limits for TFSA contributions, so there's no need for a "backdoor" strategy. The TFSA provides similar tax-free growth and withdrawal benefits without income restrictions.
Can married filing jointly spouses each do backdoor Roth?
Yes, each spouse can contribute and convert up to the annual limit ($7,000 each in 2024), effectively doubling your household's Roth IRA access to $14,000 annually.
What if I already have Traditional IRA money?
You'll face pro-rata taxation unless you can roll the pre-tax IRA funds into a 401(k) first. If your employer plan doesn't accept rollovers, you may need to accept the tax consequences or skip the backdoor Roth.
Should I do backdoor Roth every year?
If you're over the income limits and expect higher tax rates in retirement, yes. However, if you expect lower retirement tax rates, traditional 401(k) contributions might provide better value than backdoor Roth.