To convert a non-deductible IRA to a Roth IRA, make your after-tax contribution to a traditional IRA, file IRS Form 8606 to record the basis, confirm you have little or no other pre-tax IRA money sitting around, then instruct your custodian to transfer the funds directly into a Roth account. The conversion itself has no income limit, which is the whole reason the strategy exists for high earners who are shut out of direct Roth contributions.1Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs The rest is paperwork and sequencing, and getting the sequence wrong is what creates surprise tax bills.
Step 1: Make the Contribution and Record Your Basis
Contribute to a traditional IRA and choose not to deduct it on your tax return. Because the money has already been taxed, those dollars become your “basis” in the account: the running total of after-tax contributions the IRS will not tax a second time when you convert.
You document that basis by filing IRS Form 8606 with your return for every year you make a non-deductible contribution.2Internal Revenue Service. About Form 8606, Nondeductible IRAs The form records the current year’s contribution and carries forward cumulative basis from prior years. This is the only proof the IRS has that your contributions were after-tax. Skip the form and the IRS treats the money as pre-tax, meaning you pay income tax on it again at conversion.
The direct penalty for a missed Form 8606 is small: $50 per missed form, plus $100 if you overstate your non-deductible contributions.3Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs The real cost is losing your basis record. If you missed filings in past years, submit late versions to reconstruct your basis before you convert.
Step 2: Clear Out Pre-Tax IRA Money First
This is where most backdoor conversions go wrong. Federal law requires the IRS to treat all of your traditional, SEP, and SIMPLE IRAs as a single pool when calculating the tax on any distribution or conversion.4Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts Different custodians don’t matter. Mentally labeling one account as “the backdoor one” doesn’t matter. The IRS sees one combined balance and applies the pro-rata rule.
The math: divide your total pre-tax IRA money by the total balance of all your traditional-type IRAs as of December 31 of the conversion year. That ratio is the taxable percentage of every dollar you convert.
Say you have $100,000 in a rollover IRA from an old employer and you add a fresh $7,500 non-deductible contribution to a separate traditional IRA. Total balance: $107,500. Non-deductible basis: $7,500. The pre-tax share is $100,000 ÷ $107,500, or about 93%. Convert the $7,500 and roughly $6,975 of it is taxable. You can’t pick out the after-tax dollars and leave the pre-tax money behind.
The clean fix is a “reverse rollover”: move the pre-tax IRA money into a current employer’s 401(k) or similar qualified plan.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions That removes the pre-tax dollars from the IRA aggregation entirely. Only non-deductible basis remains, and the conversion becomes tax-free.
Not every employer plan accepts incoming rollovers, so check the plan document first. If yours doesn’t, and you’re self-employed without a solo 401(k), the backdoor strategy will generate a tax bill based on the pro-rata ratio each year you convert.
One more thing about the formula: it uses your combined IRA balance on December 31 of the conversion year. Converting early in the year doesn’t help if you still hold pre-tax IRA money on December 31. The year-end snapshot is what counts.6Internal Revenue Service. Instructions for Form 8606 (2025)
Step 3: Execute the Conversion
Once the non-deductible contribution is in your traditional IRA, contact your custodian and request a conversion to a Roth IRA. Most custodians handle this as a direct transfer, moving the money electronically between accounts without the funds ever landing in your bank.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions A 60-day rollover (receiving a check and redepositing it) is technically allowed, but the direct transfer removes any chance of missing the deadline and triggering a taxable distribution.
Convert as soon as practical after contributing. Any investment growth that accrues while the money sits in the traditional IRA is pre-tax earnings, and pre-tax earnings become taxable when converted. Two days of growth is negligible. Six months of growth on $7,500 might add a few hundred dollars of taxable income.
Tell your custodian not to withhold federal income tax from the conversion. Withheld amounts count as a distribution to you rather than money that reached the Roth, and you’d have to replace them from other funds within 60 days to avoid a taxable shortfall. Simpler: convert the full amount with zero withholding, then cover the tax separately.
Conversions are permanent. The Tax Cuts and Jobs Act eliminated the old recharacterization option that let you undo a Roth conversion after the fact. Run the tax math before you convert, not after.
Step 4: Pay the Tax You Owe
A large taxable conversion can create a liability your paycheck withholding won’t cover. If you owe more than $1,000 at filing and haven’t paid at least 90% of your current-year tax, 100% of last year’s tax, or 110% of last year’s if your AGI exceeded $150,000, the IRS charges an underpayment penalty.7Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty If a meaningful share of your conversion will be taxable, plan for a quarterly estimated payment or adjust your W-4.
Step 5: Report the Conversion on Your Return
Your custodian will issue Form 1099-R for the conversion year, showing the total amount converted in Box 1 and a distribution code in Box 7.8Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025) You then complete Part II of Form 8606, which calculates how much of the conversion is taxable.6Internal Revenue Service. Instructions for Form 8606 (2025)
Two lines on Form 8606 matter most in the conversion year:
- Line 6: the total value of all your traditional, SEP, and SIMPLE IRAs on December 31. This is the denominator in the pro-rata calculation.
- Line 8: the net amount you converted to a Roth during the year.
The form walks you through the pro-rata fraction and produces the taxable amount, which flows to Line 4b of your Form 1040. The gross conversion amount, including the non-taxable basis portion, goes on Line 4a.9Internal Revenue Service. Form 8606 – Nondeductible IRAs The dual reporting tells the IRS that part of the converted money was already taxed and shouldn’t be taxed again.
Skip Form 8606 in the conversion year and the IRS sees only the 1099-R, treating the entire amount as taxable income. You’d pay tax on your basis a second time. This is the single most expensive filing mistake in the backdoor Roth process.
If You’re 73 or Older: Take Your RMD First
If you’ve reached the age that triggers required minimum distributions, you must take the full RMD for the year before converting any additional IRA funds to a Roth.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The IRS treats the first dollars out of your traditional IRA each year as satisfying your RMD, and an RMD can’t be rolled over or converted. Accidentally convert your RMD amount and it becomes an excess contribution in the Roth, subject to a 6% penalty every year it stays there.11Internal Revenue Service. Roth Conversions – Potential Pitfalls Regarding Required Minimum Distributions
The sequence: withdraw the full RMD first, then convert whatever additional amount you want. Dollars moved into a Roth escape future RMDs during the original owner’s lifetime.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Before You Touch the Converted Money
Each conversion starts its own five-year clock on January 1 of the year you convert. Withdraw converted amounts before that five years is up and before you’re 59½, and you owe a 10% early withdrawal penalty on the taxable portion of the conversion.12Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions A conversion in December 2026 clears its window on January 1, 2031.
The penalty attaches only to the portion of the conversion that was taxable. If you ran a clean backdoor Roth with no pre-tax IRA balance, the entire conversion was basis and there’s nothing for the 10% to apply to. The rule bites hardest on people converting large traditional balances full of deductible contributions and years of growth. Once you reach 59½, the penalty no longer applies to conversion withdrawals regardless of the five-year clock.12Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
A separate five-year rule governs the earnings your Roth generates. For those earnings to come out fully tax-free and penalty-free, you must be at least 59½ and the Roth must have been open for at least five tax years, measured from your first-ever Roth contribution or conversion.