Backdoor Roth IRA: Step-by-Step Guide for 2026

How to Execute a Backdoor Roth IRA: Step by Step

The process is straightforward if you follow these steps carefully and understand the pro-rata rule before you begin.

Step 1: Contribute to a Traditional IRA

Open a traditional IRA at your brokerage (Vanguard, Fidelity, and Schwab all support this process seamlessly). Contribute up to $7,000 for 2026 ($8,000 if you are 50 or older). Do not deduct this contribution on your tax return — it must be non-deductible.

Step 2: Convert to Roth IRA

Once the contribution settles (typically 1-3 business days), convert the entire traditional IRA balance to your Roth IRA. Most brokerages let you do this online in minutes. If you convert quickly before any investment gains accrue, you owe zero additional tax on the conversion.

Step 3: Report on Form 8606

File IRS Form 8606 with your tax return to document the non-deductible contribution and the conversion. This form creates the paper trail proving you already paid taxes on the contribution, so the conversion is not double-taxed. Failing to file Form 8606 does not make the strategy illegal, but it creates documentation problems.

The Pro-Rata Rule: The Critical Trap

The pro-rata rule is where most people make expensive mistakes. If you have any pre-tax money in any traditional IRA (including SEP-IRAs and SIMPLE IRAs), the IRS treats all your traditional IRA money as one pool when calculating the tax on a conversion.

Example: You have a $93,000 traditional IRA (all pre-tax) and you make a $7,000 non-deductible contribution. Your total IRA balance is $100,000. When you convert $7,000 to Roth, the IRS says 93% of the conversion ($6,510) is taxable — because 93% of your total IRA balance was pre-tax money. You owe income tax on $6,510 instead of $0.

The Fix: Roll Pre-Tax IRAs Into Your 401(k)

The cleanest solution is to roll all pre-tax traditional IRA money into your employer’s 401(k) plan before doing the backdoor conversion. Most 401(k) plans accept incoming rollovers. Once your traditional IRA balance is $0, the pro-rata rule has nothing to bite — your entire $7,000 non-deductible contribution converts tax-free.