Backdoor Roth IRA

{{whyLabel}}: You only need a Backdoor Roth if your income exceeds the direct Roth IRA contribution limits.

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• Review your latest tax return or pay stubs to estimate your 2025/2026 MAGI.
• For 2025, the phase-out starts at $150,000 (Single) or $236,000 (Married Filing Jointly).
• For 2026, the phase-out starts at $153,000 (Single) or $242,000 (Married Filing Jointly).

{{doneWhenLabel}}: You have a confirmed estimate of your MAGI and know if you are over the limit.

{{whyLabel}}: The IRS 'Pro-Rata Rule' treats all your IRAs as one pool; existing pre-tax balances will make your conversion partially taxable.

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• Log into all brokerage accounts and sum up balances in Traditional, SEP, and SIMPLE IRAs.
• Note that 401(k), 403(b), and 457 plans do NOT count toward this rule.
• If you have large pre-tax balances, consider a 'Reverse Rollover' into a 401(k) to clear the path.

{{doneWhenLabel}}: You have a list of all IRA balances and understand if the Pro-Rata rule applies to you.

{{whyLabel}}: You must have 'earned income' (wages/salary) at least equal to your contribution amount.

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• Ensure you or your spouse (if filing jointly) will earn at least $7,000 (2025) or $7,500 (2026) in taxable compensation.
• Investment income, rental income, or social security do not count as earned income for IRA purposes.

{{doneWhenLabel}}: You have confirmed you have sufficient earned income for the tax year.

{{whyLabel}}: Using a single brokerage for both accounts makes the conversion process faster and reduces settlement errors.

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• Choose a provider with $0 account minimums and $0 commission fees.
• Look for 'one-click' conversion features often found in major discount brokerages.
• Ensure they offer both Traditional and Roth IRA account types.

{{doneWhenLabel}}: You have chosen a brokerage platform.

{{whyLabel}}: The 'Backdoor' is a two-step process requiring both account types to exist simultaneously.

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• Open a Traditional IRA (this will act as the temporary 'holding' account).
• Open a Roth IRA (this will be the final destination for your funds).
• If you already have these accounts with a zero balance, you can reuse them.

{{doneWhenLabel}}: Both accounts are open and visible in your brokerage dashboard.

{{whyLabel}}: Contributing the maximum allowed helps maximize tax-free growth.

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• For 2025: $7,000 (under 50) or $8,000 (50+).
• For 2026: $7,500 (under 50) or $8,600 (50+).
• Ensure you have this amount available in a liquid savings or checking account.

{{doneWhenLabel}}: You have a specific dollar amount ready for transfer.

{{whyLabel}}: This is the first half of the backdoor. You are making a contribution for which you will NOT claim a tax deduction.

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• Transfer the determined amount from your bank to the Traditional IRA.
• Specify the correct tax year (e.g., 2025) during the deposit process.
• Keep the funds in a 'Money Market' or 'Cash' position to avoid price fluctuations before conversion.

{{doneWhenLabel}}: The funds are visible in your Traditional IRA account.

{{whyLabel}}: Brokerages require 1–3 business days for the bank transfer to fully clear before allowing a conversion.

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• Monitor your account until the 'Available to Withdraw' or 'Settled Cash' balance matches your deposit.
• Do not attempt the conversion while the status is still 'Pending'.

{{doneWhenLabel}}: The full contribution amount is listed as 'Settled Cash'.

{{whyLabel}}: This move shifts the money from the taxable Traditional IRA to the tax-free Roth IRA.

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• Select 'Convert to Roth' or 'Move Assets' in your brokerage portal.
• Choose to convert the ENTIRE balance of the Traditional IRA.
• Opt NOT to have taxes withheld from the conversion (since the contribution was non-deductible, no tax is usually owed on the principal).

{{doneWhenLabel}}: The Traditional IRA balance is $0 and the Roth IRA balance has increased by the contribution amount.

{{whyLabel}}: Money in a Roth IRA only grows if it is invested in assets like stocks, bonds, or ETFs.

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• Select low-cost broad market index funds or target-date funds.
• Set up an automatic investment plan if you plan to do this annually.
• Confirm the trade has executed.

{{doneWhenLabel}}: Your Roth IRA funds are allocated to your chosen investments.

{{whyLabel}}: The IRS checks your IRA balances on the last day of the year to apply the Pro-Rata rule.

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• Log in on Dec 31 and ensure all Traditional, SEP, and SIMPLE IRAs show a $0 balance.
• If small amounts of interest (pennies) accrued, convert those as well before year-end.

{{doneWhenLabel}}: All pre-tax IRA accounts show a $0.00 balance on December 31.

{{whyLabel}}: These forms are generated by your brokerage to document the distribution and the contribution.

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• Form 1099-R (usually available in January) shows the amount converted.
• Form 5498 (usually available in May) shows the contribution to the Roth IRA.
• Keep these for your tax records.

{{doneWhenLabel}}: You have both forms saved in your financial records.

{{whyLabel}}: This is the most critical step; it tells the IRS that your contribution was non-deductible and therefore the conversion is not taxable.

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• Use tax software or a CPA to complete Form 8606.
• Report the non-deductible contribution on Part I.
• Report the conversion to Roth on Part II.
• Ensure Line 14 (Total Basis) is tracked correctly for future years.

{{doneWhenLabel}}: Form 8606 is included in your filed tax return.