Backdoor Roth IRA Explained for High-Income Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

A backdoor Roth IRA is a two-step move for people whose income is too high to contribute to a Roth IRA directly: you make a nondeductible contribution to a traditional IRA, then convert it to a Roth IRA. For 2026 that is up to $7,500 per spouse ($8,600 at age 50 or older), and for a spouse who holds no other pre-tax IRA money, the conversion is close to tax-free. The rule that decides whether it works is the pro-rata rule, and it is where most high-income households get caught.

For a married couple filing jointly, the ability to contribute directly to a Roth IRA phases out between $242,000 and $252,000 of modified AGI for 2026. A household earning $750,000 to $3 million is far above that line, so neither parent can contribute directly and the backdoor is how each of them adds new money to a Roth IRA every year.

Why the backdoor still matters at a $900,000 income

$15,000 a year for a couple sounds small next to RSU vests and a 401(k). The value is in where the money sits for the next 30 years. Growth inside a Roth IRA is not taxed again, qualified withdrawals are tax-free, and the owner has no lifetime required minimum distributions. For a California family that pays up to 13.3% state tax on investment income in a taxable account (California has no lower rate for capital gains), moving $15,000 a year out of a brokerage account and into a Roth adds up.

It also pairs well with the kids. A Roth IRA left to children is one of the cleaner assets to inherit, and the habit of doing it every January is easy to hand down.

How the backdoor Roth works, step by step

1. Check for other pre-tax IRA money. Add up every traditional, rollover, SEP and SIMPLE IRA in your own name. Form 8606 treats all of them as one pot. If the total is zero, the conversion is typically close to tax-free. If not, read the pro-rata section below first.
2. Contribute to a traditional IRA and do not deduct it. For 2026 the limit is $7,500, plus a $1,100 catch-up at 50 or older. At your income, with a workplace plan, the deduction phases out between $129,000 and $149,000 of MAGI, so the contribution is nondeductible anyway. You can make it any time from January 1 until the due date of your 2026 return, not including extensions.
3. Convert to your Roth IRA. Most custodians let you convert online in a few minutes. Converting soon after the contribution settles keeps any earnings, which are taxable, to a few dollars. There is no income limit on conversions.
4. File Form 8606 with your return. Part I records the nondeductible contribution (your “basis”). Part II reports the conversion and works out how much of it is taxable. Each spouse files a separate Form 8606. Skipping it when you made a nondeductible contribution carries a $50 penalty, but the real cost is losing the record that the money was already taxed.
5. Repeat each year. Expect a Form 1099-R from the custodian showing the conversion as a distribution. That is normal; Form 8606 shows it was not taxable.

One thing changed in 2018: you can no longer undo (recharacterize) a Roth conversion. Once converted, it stays converted, which is why step 1 matters.

The pro-rata rule: the trap for anyone with an old rollover IRA

The IRS does not let you choose to convert only your after-tax dollars. When you convert, the taxable share is your pre-tax IRA money divided by all your IRA money, measured using the value of all your traditional, SEP and SIMPLE IRAs on December 31 of the year of the conversion. That date matters: an old 401(k) you rolled into an IRA in November counts, even if you did the backdoor in February.

The rule is applied person by person. A spouse’s rollover IRA does not affect your conversion, and money inside a 401(k) or 403(b) does not count at all.

Worked example: a $950,000 California household

Assumptions (illustrative): married, filing jointly, W-2 pay from a biotech scientist and a physician, with federal and California taxable income of about $950,000 each (after 401(k) deferrals and deductions), two children aged 4 and 8. Each spouse makes a $7,500 nondeductible contribution in January 2026 and converts it the same week. Earnings before conversion are ignored. The physician has a $142,500 rollover IRA from residency; the scientist has none.

At about $950,000 of taxable income, this couple is in the 37% federal bracket for 2026 (it starts at $768,700 for joint filers) and in California’s 11.3% bracket (2025 schedule, the latest published; $891,542 to $1,485,906 for joint filers). Left alone, the physician’s “backdoor” is mostly a taxable conversion, and the $142,500 keeps creating the same problem every year.

The usual fix is to move the pre-tax rollover IRA into the physician’s current 401(k) or 403(b) before December 31. Only the pre-tax part of an IRA can be rolled into an employer plan, and plans may, but are not required to, accept these roll-ins, so check with the plan first. The other option is to convert the full $142,500 in a lower-income year (a sabbatical or a gap between jobs) and pay the tax once.

California versus Washington

California. The taxable part of any conversion is ordinary income. California has no lower rate for investment income, so the case for a Roth is strong, but a pro-rata mistake is also expensive: up to 13.3% state tax (2025) on top of federal tax.

Washington. There is no wage or individual income tax in 2026, so a taxable conversion costs only federal tax. Washington’s 7% capital gains tax exempts retirement accounts. One change to plan around: Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (SB 6346). The Department of Revenue has not yet published how it treats items like Roth conversions, so a family thinking about a large conversion may prefer to do it before 2028.

Backdoor Roth versus mega backdoor Roth

The two names sound alike but use different accounts. The mega backdoor runs through your 401(k): after-tax (not Roth) contributions on top of your regular deferrals, then converted to Roth inside the plan or rolled out to a Roth IRA. Some employers offer it and many do not, so it depends entirely on your plan document.

Example: one spouse at 45 defers $24,500 in 2026 and receives $12,000 in employer contributions (assumed). The remaining room for after-tax contributions is $72,000 minus $24,500 minus $12,000, or $35,500. Families who can fund both often do the IRA backdoor first because it is fully in their control, then the mega backdoor to the extent cash flow allows. We compare the mega backdoor with a taxable account in Mega Backdoor Roth vs Brokerage.

Common mistakes we see

• Forgetting the December 31 test. Rolling a 401(k) from a former employer into an IRA late in the year can make an earlier conversion taxable.
• Deducting the contribution. At these incomes the deduction is not available when either spouse is covered by a workplace plan, and some tax software defaults to deducting it. Check Form 8606, line 1.
• Missing Form 8606. Preparers sometimes miss it when the conversion happens in a different tax year than the contribution. Without it, the IRS has no record of your basis.
• Withdrawing a conversion too early. Each conversion has its own 5-year clock for the 10% additional tax if you are under 59½, though that tax only applies to the part of the conversion that was taxable. A clean backdoor has little or no taxable part, but a pro-rata conversion does.
• Letting the cash sit. The conversion lands in the Roth IRA as cash. Invest it.

What to document for your kids

Your Roth IRA basis lives on years of Form 8606 filings, and a custodian’s records may not go back far enough. Keep every Form 8606 together with the 1099-R and year-end IRA statement for that year, and write one paragraph on why you chose Roth money: what you expected about future tax rates, and which accounts you would want the children to inherit first. When your kids are old enough to have a summer job, the same idea applies to a custodial Roth IRA. Conversations fade. Documentation compounds.

Frequently asked questions

Is the backdoor Roth legal?

Yes. Nondeductible traditional IRA contributions and Roth conversions are both permitted, and Form 8606 exists to report exactly this sequence. The income limit applies only to direct Roth contributions; conversions have no income limit. The risk is not legality but getting the pro-rata math and paperwork wrong.

When can we take money out of the Roth IRA?

Withdrawals of your own contributions and converted amounts come out before earnings. Earnings are tax-free once five tax years have passed since your first contribution to any Roth IRA (a conversion counts) and you are 59½ or older. Each conversion also has its own 5-year clock for the 10% additional tax if you are under 59½. More detail in When Can You Withdraw from Roth IRA.

Does a spouse’s rollover IRA ruin my backdoor?

No. The pro-rata rule looks only at IRAs in your own name. In the example above, the scientist’s conversion is fully tax-free even though the physician holds $142,500 of pre-tax IRA money. Each spouse runs their own test and files their own Form 8606. Our guide to the pro-rata rule goes further.

Next step

Before January, list every IRA in each spouse’s name with its balance and whether your current 401(k) accepts roll-ins. If both lists are clean, the backdoor is a 15-minute task each year. If not, our retirement and employee benefits and tax management work starts with exactly that inventory.

This is general education, not individual tax advice; the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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