Backdoor Roth Step by Step: The IRA and the Mega Backdoor

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

A backdoor Roth takes two steps: you put after-tax money into an account that has no income limit, then convert it to Roth. For a standard backdoor Roth IRA, that means a nondeductible contribution of up to $7,500 per spouse for 2026, converted to a Roth IRA and reported on Form 8606. The mega backdoor Roth does the same thing inside your workplace 401(k) using after-tax contributions, and it can move tens of thousands of dollars a year, but only if your plan allows it.

This guide walks through both, in order, for a California or Washington household earning well above the Roth IRA income limit. For 2026, direct Roth IRA contributions phase out between $242,000 and $252,000 of modified AGI for married couples filing jointly (IRS Notice 2025-67), so at $750,000 or more a direct Roth IRA contribution is not allowed and the backdoor is the usual way in.

The two backdoors side by side (2026)

Limits are from IRS Notice 2025-67. Catch-up contributions for those 50 and older sit on top of the $72,000 limit, but most families we work with are under 50 and the catch-up does not change the math below.

Backdoor Roth IRA step by step

1. Check for pretax IRA money, for each spouse. Add up every traditional IRA, rollover IRA, SEP IRA and SIMPLE IRA in that person’s name. The IRS treats all of them as one pool when it works out how much of a conversion is taxable, using the total value on December 31 of the conversion year plus the amount you converted during the year (Form 8606 instructions). Your 401(k) does not count. If the pool is zero, skip to step 3.
2. Clear the pool if needed. The usual fix is to roll pretax IRA money into your current employer’s 401(k), if the plan accepts roll-ins (the IRS rollover chart shows this move is allowed; your plan decides whether it accepts it). It has to be done by December 31 of the year you convert.
3. Make a nondeductible traditional IRA contribution. Up to $7,500 each for 2026. At your income you cannot deduct it if either of you is covered by a workplace plan (the 2026 deduction phase-out for a covered contributor ends at $149,000 MFJ), so it is after-tax money. You can contribute for 2026 until the due date of your 2026 return, not including extensions (IRS Pub 590-A).
4. Convert to the Roth IRA. Most custodians let you convert online once the cash settles. Leaving it in cash until then keeps any taxable earnings close to zero.
5. File Form 8606 for each spouse. Part I records the nondeductible contribution (your basis). Part II reports the conversion. If both of you do it, each files a separate Form 8606. Skipping the form when you made a nondeductible contribution carries a $50 penalty, but the bigger cost is losing track of basis and paying tax twice later.

A spouse who is home with the kids can still do this. The IRA contribution limit for a married couple filing jointly is based on the couple’s combined taxable compensation, so a non-working spouse can fund their own IRA and run the same steps (Pub 590-A).

Mega backdoor Roth step by step

1. Read your plan’s summary plan description, or ask HR two questions. Does the plan accept after-tax contributions (not Roth deferrals, which are a different bucket)? And does it allow in-plan Roth rollovers or in-service withdrawals of after-tax money? You need a yes to the first and at least one yes to the second. In-plan Roth rollovers are optional for employers: the IRS says plans “may offer” them (IRS FAQs on designated Roth accounts).
2. Work out your room. For 2026: $72,000 minus your pretax or Roth deferrals ($24,500 if you defer the maximum) minus your employer’s match and profit-sharing. Ask HR for the match formula, because the match uses up room too.
3. Set the after-tax payroll percentage. Spread it over the year unless you know your plan has a match true-up. If you hit the $72,000 ceiling in October, payroll may stop and any match tied to those later paychecks may be lost.
4. Turn on automatic in-plan conversion, or convert often. After-tax dollars convert tax-free. Only the earnings on them are taxable when converted: the IRS says you include “fair market value minus your basis” (IRS FAQs on designated Roth accounts). Converting each pay period keeps that number small. If your plan instead allows in-service withdrawals, the IRS lets you send the after-tax amount to a Roth IRA and the pretax earnings to a traditional IRA (IRS guidance on after-tax rollovers, Notice 2014-54), but that traditional IRA money then counts in the pro-rata pool for your backdoor Roth IRA. For most families, the in-plan conversion is cleaner.
5. Keep the 1099-R. The plan sends one for the conversion year. The taxable box should show only the earnings. Give it to your CPA with a note saying the contributions were after-tax.

Worked example: a $1.2M Bay Area household with two kids

Assumptions (illustrative): married filing jointly, $1.2 million combined W-2 income, children ages 4 and 8. Partner A, 41, works at a large tech employer whose 401(k) allows after-tax contributions with automatic in-plan Roth conversion, and matches 50% of deferrals. Partner B, 39, is a physician whose 403(b) has no after-tax option. Partner B also has a $292,500 rollover IRA from residency.

Mega backdoor room for Partner A

• Total plan additions limit for 2026: $72,000
• Partner A’s pretax deferral: $24,500
• Employer match, 50% of $24,500: $12,250
• Room for after-tax contributions: $72,000 minus $24,500 minus $12,250 = $35,250

Partner B’s pro-rata problem

If Partner B contributes $7,500 nondeductible and converts it while the $292,500 rollover IRA is still there, Form 8606 adds the $292,500 still in the IRA on December 31 (assuming no growth) to the $7,500 converted, for a pool of $300,000. Only 2.5% of it is basis ($7,500 divided by $300,000), so just $187.50 of the conversion is tax-free and $7,312.50 is taxable. At the 37% federal rate (2026, MFJ taxable income over $768,700), that is about $2,706 of federal tax on a move that was meant to be tax-free, plus state tax for a California household. If Partner B’s 403(b) accepts roll-ins and the rollover IRA moves there before December 31, the pool is zero and the conversion is essentially tax-free.

What the family adds to Roth each year

At a hypothetical 6% annual return, $50,250 a year for 10 years grows to about $662,000. That growth is not taxed as it accrues, and qualified Roth withdrawals are federally tax-free. Roth accounts also have no required minimum distributions for the owner, which makes them a useful account to leave to children.

Why this matters more in California than in Washington

The alternative to Roth money is usually a taxable brokerage account. In California, there is no lower rate for capital gains, so every realized gain in that account is taxed as ordinary income at rates up to 13.3% (2025 schedule, the latest published by the FTB), on top of federal tax. Sheltering $50,000 a year from that drag compounds over decades.

In Washington there is no tax on wages in 2026, but long-term capital gains above the standard deduction ($278,000 for 2025) are taxed at 7%, and 9.9% on taxable gains above $1 million (WA DOR). Retirement accounts are exempt. Washington has also enacted a 9.9% income tax on AGI over $1 million starting in 2028 (WA DOR), so a Washington family’s long-term picture is less tax-free than it was. For a fuller comparison, see mega backdoor Roth vs brokerage.

Mistakes we see most often

• Forgetting a SEP IRA or old rollover IRA in one spouse’s name. Each spouse’s pool is separate, so check both.
• Confusing Roth deferrals with after-tax contributions. Roth 401(k) deferrals count toward the $24,500 limit. After-tax contributions are the separate bucket that makes the mega backdoor work.
• Letting after-tax money sit unconverted. Earnings build up and become taxable at conversion.
• Assuming the plan will let you contribute the full amount. Plans must pass nondiscrimination testing, and highly compensated employees (the 2026 threshold is $160,000 of pay) can have after-tax contributions capped or refunded. Ask HR whether that happened last year.
• Withdrawing converted money too soon. Each conversion has its own five-year clock for the 10% early withdrawal tax before age 59½ (IRS Pub 590-B). See mega backdoor Roth withdrawal rules and when you can withdraw from a Roth IRA.

What to write down for your kids

A Roth account is often the account a family leaves to the next generation, so the reasoning behind it is worth a page. Record which accounts are Roth, which are pretax, where Form 8606 copies live, and why you chose to put after-tax money here instead of a brokerage account. When your children are old enough to earn their first paycheck, the same idea applies to a custodial Roth IRA. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”

Common questions

Which tax forms does a backdoor Roth need?

You file Form 8606 with your return for each spouse who made a nondeductible contribution or a conversion. The custodian sends Form 1099-R for the conversion and Form 5498 showing the contribution. For a mega backdoor, the plan sends a 1099-R for the in-plan conversion, and only the earnings portion should be taxable. Keep every 8606 permanently, because it is your record of basis.

Can I roll an IRA into my 401(k) to fix the pro-rata rule?

Yes, if your plan accepts incoming rollovers. The IRS allows pretax IRA money to roll into a 401(k), 403(b) or governmental 457(b), but each plan decides whether to take it, and after-tax IRA basis cannot go in. Ask HR for the roll-in form, move the money before December 31 of your conversion year, and check the plan’s investment menu and fees first.

Is the mega backdoor worth it if we already max our 401(k) deferrals?

Often yes, because it is the main way to move a large amount into Roth each year at this income level. The trade-off is that after-tax dollars are already taxed at your top rate and cannot be deducted. Families who expect to need the cash before retirement, or who are building up a home down payment, sometimes choose brokerage instead.

Next step

Pull your plan’s summary plan description this week and check for after-tax contributions and in-plan Roth conversion. If you want help with the numbers, our retirement and employee benefits and tax management work covers this as part of the Tax & Wealth Assessment. This is general education, and 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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