The Step-by-Step Process for Converting After-Tax Contributions to a Roth IRA

How the backdoor Roth conversion actually works

A backdoor Roth is a two-step process: you contribute money to a traditional IRA as an after-tax contribution (money that does not reduce your current-year taxes), then convert that after-tax balance to a Roth IRA. The conversion itself is not taxable because you already paid tax on the contribution. The result is money sitting in a Roth account where it can grow tax-free and be withdrawn tax-free in retirement.

The mechanics are straightforward, but the order and timing matter. You cannot convert money that has not been contributed yet, and the IRS watches for what it calls "pro-rata" situations—where you have pre-tax money sitting in traditional IRAs at the same time you convert. That situation creates a tax bill you probably do not want.

Most people do a backdoor Roth once per year, usually in early January or December. Some do it multiple times in a single year if their income situation changes. The entire process typically takes two to four weeks from start to finish, depending on how fast your bank and brokerage move.

Key Takeaways

• Contribute after-tax money to a traditional IRA first, then immediately convert that balance to a Roth IRA within days or weeks.
• If you have any pre-tax money in a traditional, SEP, or SIMPLE IRA on December 31 of the conversion year, the IRS will tax a portion of your conversion based on your total IRA balances.
• File Form 8606 with your tax return to report the conversion and avoid being taxed twice on the same money.
• You can do a backdoor Roth regardless of your income level, even if you earn too much to contribute directly to a Roth IRA.
• The conversion itself is not a taxable event if you convert only after-tax contributions, but any earnings on that money during the holding period are taxable.

Step 1: Contribute after-tax money to a traditional IRA

Open or use an existing traditional IRA at your brokerage. Contribute cash in an amount that does not exceed the annual IRA contribution limit—currently $7,000 per year for people under 50, or $8,000 if you are 50 or older. This limit is the same whether you contribute to a traditional IRA, a Roth IRA, or split between them.

The contribution must be after-tax money. You are not taking a deduction for it on your tax return. Your brokerage will ask you to specify this when you make the contribution, or you will need to note it in your records. Some brokerages have a checkbox for "nondeductible contribution" or "after-tax contribution." If you are unsure, contact your brokerage's customer service and tell them you want to make a nondeductible contribution to a traditional IRA.

Do not invest this money yet. Leave it sitting in cash or a money market fund inside the IRA. The reason is that any earnings on the money between contribution and conversion will be taxable to you, and you want to minimize that gap.

Step 2: Wait a few days, then convert to a Roth IRA

After the contribution has settled—usually one to three business days—log into your brokerage and initiate a conversion from the traditional IRA to a Roth IRA. Some brokerages call this a "Roth conversion" or "IRA rollover." You are moving the after-tax balance from the traditional IRA to a Roth IRA you already own or will open at the same brokerage.

The conversion itself is a transfer of assets, not a withdrawal. Your brokerage handles the paperwork. You will receive a confirmation and a Form 1099-R from the brokerage showing the conversion amount. Keep this document—you will need it when you file your taxes.

The shorter the time between contribution and conversion, the better. Ideally, convert within a few days. The longer you wait, the more likely the money will earn interest or dividends, and that earnings portion becomes taxable income to you in the year of conversion.

The pro-rata rule and why pre-tax IRA balances matter

If you have any pre-tax money in a traditional IRA, SEP IRA, or SIMPLE IRA on December 31 of the year you convert, the IRS applies the pro-rata rule. This rule treats all your IRAs as a single pool for tax purposes. The IRS calculates what percentage of your total IRA balance is pre-tax, and taxes that same percentage of your conversion.

Example: You have a traditional IRA with $50,000 in pre-tax contributions (from a rollover or deductible contributions). You contribute $7,000 after-tax to a separate traditional IRA and convert it to a Roth. Your total IRA balance is now $57,000. The pro-rata calculation is $50,000 ÷ $57,000 = 87.7% pre-tax. The IRS taxes 87.7% of your $7,000 conversion, or about $6,139, as ordinary income. You wanted to move $7,000 tax-free, but you owe tax on most of it.

To avoid this, you must have zero pre-tax IRA balances on December 31 of the conversion year. If you have a 401(k), 403(b), or other workplace plan, those do not count toward the pro-rata rule—only IRAs count. If you have pre-tax IRA money, you can roll it into your employer plan before you do the backdoor Roth, provided your plan allows incoming rollovers. Check your plan documents or call your plan administrator to confirm.

Reporting the conversion on your tax return

When you file your tax return for the year of conversion, you must file Form 8606 (Nondeductible IRAs). This form tells the IRS that you made a nondeductible contribution and converted it. It calculates how much of the conversion is taxable based on your IRA balances and prevents you from being taxed twice on the same money.

Your brokerage will send you Form 1099-R showing the conversion amount. The form will show the full conversion amount as a distribution, which can look like a taxable event if you do not file Form 8606. Form 8606 corrects this and shows the IRS that the after-tax portion is not taxable.

If you do a backdoor Roth and do not file Form 8606, the IRS may assess tax on the entire conversion amount, even though you already paid tax on the contribution. Filing Form 8606 is not optional—it is required whenever you make a nondeductible IRA contribution.

Timing: when to do a backdoor Roth during the year

You can do a backdoor Roth at any time during the calendar year. Many people do it in January because it is simple to remember and gives the money the full year to grow in the Roth. Others do it in December to capture the year's contribution room before the deadline.

The key date is December 31. Your pro-rata calculation is based on IRA balances on that date. If you have pre-tax IRA money and want to do a backdoor Roth, you must roll that pre-tax money into a workplace plan before December 31 of the conversion year. If you wait until January, the pro-rata rule will apply to your prior-year conversion.

If you do multiple backdoor Roths in a single year—for example, if you get married mid-year and your spouse also wants to do one—each conversion is reported separately on Form 8606, but they are all part of the same pro-rata calculation based on December 31 balances.

Common mistakes and how to avoid them

The most common mistake is not checking for pre-tax IRA balances before converting. Many people forget about an old SEP IRA from a previous job or a rollover IRA they opened years ago. Before you contribute to a traditional IRA for a backdoor Roth, log into every brokerage where you have an IRA and confirm the balances. If you find pre-tax money, roll it into your current employer plan before you do the conversion.

Another mistake is investing the after-tax contribution before converting. If you buy stocks or funds with the money and they gain value before conversion, that gain is taxable income to you. Keep the money in cash or a money market fund from contribution through conversion.

A third mistake is forgetting to file Form 8606. Without it, the IRS sees the conversion as a taxable distribution. You will owe tax on money you already paid tax on, and you may face penalties if the discrepancy is caught during an audit. Form 8606 is filed with your 1040 and takes minutes to complete.

Frequently Asked Questions

Can I do a backdoor Roth if I have a 401(k) at work?

Yes. A 401(k), 403(b), or other workplace plan does not trigger the pro-rata rule. Only IRAs count. However, if you have a traditional IRA with pre-tax money, you must roll that into your workplace plan before converting, assuming your plan allows incoming rollovers.

What if I cannot roll my pre-tax IRA into my workplace plan?

Some plans do not accept rollovers. If yours does not, you cannot do a backdoor Roth that year without triggering the pro-rata rule and owing tax on a portion of the conversion. You would need to either change plans, move to an employer with a plan that accepts rollovers, or skip the backdoor Roth that year.

How long do I have to wait between contributing and converting?

There is no IRS-mandated waiting period. You can convert the same day you contribute, though most brokerages require the contribution to settle first, which takes one to three business days. Converting quickly minimizes earnings on the money, which keeps your tax bill lower.

Do I owe tax on earnings between contribution and conversion?

Yes. If the after-tax money earns interest or dividends while sitting in the traditional IRA, that earnings portion is taxable income in the year of conversion. This is why you should keep the money in cash and convert quickly—to minimize earnings.

Can my spouse do a backdoor Roth in the same year?

Yes. Each spouse can contribute and convert up to the annual limit. Each person files their own Form 8606. The pro-rata rule applies separately to each spouse based on their own IRA balances on December 31.