Backdoor Roth in 4 Steps: $7,500 Past the $165K Limit

Priya, a 38-year-old software engineer in Austin, Texas, earns $198,000 in W-2 salary plus vesting RSUs. Filing single, she’s far over the 2026 Roth IRA phase-out ceiling of $165,000 — so she can’t contribute to a Roth the normal way. The backdoor lets her do it anyway: she puts $7,500 of after-tax cash into a traditional IRA, converts it to Roth four days later, and files one Form 8606. Because she has $0 in any pre-tax IRA, the conversion is entirely tax-free. She just moved $7,500 into a Roth that her income legally barred her from — and in Texas, with no state income tax, there’s no state-level wrinkle either.

That’s the whole strategy in one paragraph. The rest of this page is the four mechanical steps, the one decision that determines whether you should do it at all, and the plain-English glosses on the jargon (pro-rata, non-deductible, 8606) so none of it trips you up.

Why you need the backdoor: the 2026 income limits

A Roth IRA lets your money grow and come out tax-free in retirement, but the right to contribute directly phases out as your income rises. For 2026 (per IRC §408A and the IRS cost-of-living adjustments):

Once your modified adjusted gross income clears the top of the band, your direct Roth contribution limit is $0. But the conversion step — moving money from a traditional IRA to a Roth IRA — has no income limit at all. That gap is the door. Walk a non-deductible contribution through the traditional IRA, then convert it. Nothing in the code stops a $700,000 earner from doing this every January.

The 4 steps

1. Make a non-deductible contribution to a traditional IRA. Up to $7,500 for 2026 ($8,500 if you’re 50 or older, including the $1,000 catch-up under IRC §219(b)(5)). “Non-deductible” means you don’t take a tax deduction for it — you’re putting in after-tax dollars, which is exactly what you want, because you’ve already accepted you’re over the income limits. The contribution deadline is your tax filing date (April 15, 2027 for tax year 2026).
2. Park it in cash — do not invest yet. Leave the contribution in a money-market or cash sweep inside the traditional IRA. The point is to avoid earnings before you convert. Any growth between contribution and conversion is taxable ordinary income reported on your Form 8606, so you want the balance to sit flat.
3. Convert the traditional IRA to a Roth IRA — within days. Once the contribution settles (usually a few business days), tell your custodian to convert the full balance to your Roth IRA. There’s no waiting period required by law. If your pre-tax IRA balance is $0, the conversion is tax-free because you’re only moving after-tax dollars you’ve already paid tax on.
4. File Form 8606 with your return. Part I reports the $7,500 non-deductible contribution (this records your “basis” — the after-tax dollars). Part II reports the conversion. Done correctly, the taxable amount comes out to $0. File it every single year you run the backdoor. (Per IRC §408(d) and IRS instructions; the failure-to-file penalty is $50.)

That’s it. Contribute, park, convert, file. The mechanics take maybe 20 minutes spread across a week. The harder part is the one decision that decides whether you should do it at all.

The one screen that decides whether you should do it: the pro-rata rule

Before you contribute a dollar, answer one question: do you have any money in a traditional IRA, SEP-IRA, or SIMPLE IRA? If the answer is no, you have a clean backdoor — proceed. If the answer is yes, the pro-rata rule changes everything.

Under IRC §408(d)(2), the IRS treats all your traditional, SEP, and SIMPLE IRAs as a single combined pool on December 31 of the conversion year. You can’t convert only the after-tax dollars and leave the pre-tax behind. Every conversion comes out as a blend of pre-tax and after-tax money, in proportion to the pool.

In the second row, converting your $7,500 means only $562.50 (7.5%) comes out tax-free; the other $6,937.50 is taxed as ordinary income at your marginal rate — potentially the 32% or 35% federal bracket for a high earner, plus state tax. That’s not a backdoor; that’s a partial taxable conversion you probably didn’t intend.

The fix: roll the pre-tax IRA balance into your current employer’s 401(k) before December 31. Employer 401(k) plans are excluded from the pro-rata pool, so once your IRA balance is back to $0 on the year-end snapshot, the math resets to clean. We cover the timing of that move in the cleanup guide linked below.

Plain-English glossary

• Non-deductible contribution: money you put into a traditional IRA without claiming a tax deduction. You’re funding it with after-tax dollars on purpose, so converting it later doesn’t trigger a second tax.
• Pro-rata rule: the IRS rule (IRC §408(d)(2)) that blends all your IRA pre-tax and after-tax dollars together when you convert, so you can’t isolate the after-tax money.
• Basis: the after-tax dollars you’ve already paid tax on. Form 8606 tracks it so those dollars aren’t taxed again.
• Form 8606: the IRS form that reports non-deductible contributions and conversions. It’s how the IRS knows your contribution was already taxed.

Timing: two different deadlines that trip people up

The contribution and the conversion have different deadlines, and conflating them costs people a year:

• Contribution deadline = your tax filing date. You can make a 2026 traditional IRA contribution any time up to April 15, 2027. So even if you forgot, you have a window into the following spring to fund the prior year.
• Conversion deadline = December 31 of the tax year. A conversion counts in the calendar year it happens. A conversion done in January 2027 is a 2027 conversion, even if the contribution was for 2026.

This asymmetry is why the cleanest play is to contribute and convert in the same calendar year, early — ideally in January for the current year. Do both in one window and there’s no calendar-straddling to track and no pre-tax balance lingering across a December 31 snapshot.

What most people miss

Three things sink more backdoor Roths than the income limits ever do:

• The pro-rata snapshot is December 31, not the conversion date. People roll their pre-tax IRA into a 401(k) in February, thinking they’ve cleaned up — but if they’d already done a conversion that same year, the year-end balance still controls the math for that conversion. The order and the calendar both matter.
• Skipping Form 8606 means double taxation. If you never file the 8606 reporting your basis, the IRS has no record that you contributed after-tax dollars. When you eventually withdraw, those same dollars get taxed again. File it every year, and keep copies — basis carries forward across decades.
• A spouse’s pre-tax IRA does NOT contaminate yours. The pro-rata rule is calculated per individual, not per household, even on a joint return. If you have a $0 IRA balance but your spouse has a $300,000 rollover IRA, your backdoor is still clean. Couples routinely get this wrong and skip a perfectly good $7,500 contribution. (See the spouse-aggregation guide below.)

One more: the “step transaction” fear — the worry that the IRS will collapse the contribution and conversion into a single taxable event because they happen so close together — is obsolete. The 2017 TCJA conference report explicitly described the backdoor Roth as a permitted technique. You do not need to wait a year, or even a month, between steps.

What $7,500 a year actually compounds into

The reason high earners chase this $7,500 even though it feels small next to a $24,500 401(k) deferral (the 2026 elective limit under IRC §402(g)) is the tax treatment, not the size. A Roth grows tax-free and comes out tax-free after 59½ and the 5-year clock — no RMDs in your lifetime (Roth IRAs are exempt from the age-73/75 RMD rule under IRC §408A(c)(5)), no tax on the gains, and no drag on your future Social Security taxation or IRMAA tier.

Run the math: $7,500 contributed every year for 25 years at a 7% return grows to roughly $474,000, of which about $287,000 is pure gain that never gets taxed. For a married couple each running their own $7,500 (the per-person limit under IRC §219(b)(5)), that’s a combined $15,000/year compounding to roughly $948,000 of tax-free retirement money — built entirely from income that the $165,000 / $246,000 phase-out (IRC §408A) supposedly locked out of a Roth. That is why the backdoor is worth a Form 8606 and 20 minutes a year.

Where this page sits in the bigger plan

This is the broad entry page — the four steps and the single screening question. If your screen turned up a pre-tax IRA balance, you don’t skip the backdoor; you clean up first. The three guides linked below go deeper than this page can: the full pro-rata mechanics, the year-end 401(k) rollover cleanup, and the per-person rule that frees couples to each run their own $7,500. If your income is driven by equity compensation, the same earnings that pushed you past the $165,000 ceiling also touch AMT (the 2026 ISO exemption phaseout starts at $500,000 of AMTI under the OBBBA reset) and the 3.8% NIIT — so the backdoor is one line item in a wider high-earner tax plan, not a standalone trick.

Your decision lever

The backdoor Roth comes down to one binary: is your combined pre-tax IRA balance $0 on December 31? If yes, run the four steps now — contribute $7,500 (or $8,500 at 50+), park it, convert within days, file Form 8606, and you’ve added tax-free retirement money your income legally locked you out of. If no, pull that pre-tax balance into your employer 401(k) before year-end first, then run the four steps. Don’t convert into a pre-tax balance and don’t skip the 8606 — those are the only two ways this clean, no-income-limit strategy turns into a tax bill.