Google a backdoor Roth and you get 2 steps: contribute to a traditional IRA without a deduction, then convert to Roth. The IRS treats every traditional, SEP, and SIMPLE IRA you own as 1 pile. If an old 401(k) rollover sits in a traditional IRA, most of the conversion is taxable. Run that test before you contribute.
What is a backdoor Roth?
A backdoor Roth is a nondeductible traditional IRA contribution followed by a conversion of those dollars to a Roth IRA.
People search it after Roth MAGI closes a direct contribution. For 2026, Publication 590-A and the IRS 2026 retirement-limit notice set the Roth IRA MAGI phaseout at $153,000 to $168,000 if you file single or head of household, and $242,000 to $252,000 if you file married filing jointly. Married filing separately, if you lived with your spouse during the year, phases out from $0 to $10,000. See what MAGI is for Worksheet 2-1.
A traditional IRA contribution can still be made after Roth MAGI phases out. That contribution can be nondeductible. You report that basis on Form 8606. Then you convert. The conversion is the second step. How a Roth conversion counts as income covers the tax on the converted dollars. This post covers the pile that sets how much of those dollars is taxable. After-tax leftover under section 415(c) inside a 401(k) is the mega backdoor Roth. Those dollars stay off Form 8606 while they remain in the plan.
Why does the IRS pile every IRA together?
The IRS treats every traditional, SEP, and SIMPLE IRA you own as 1 contract for a conversion or distribution.
Form 8606 says the term traditional IRA includes traditional SEP IRAs and traditional SIMPLE IRAs. Line 6 of the 2025 form (the latest form posted by the IRS as of this writing) asks for the December 31 value of all of those IRAs, plus certain outstanding rollovers. Roth IRAs stay off that line. A 401(k) stays off that line.
Basis is a share of the whole pile. Practitioners call this the pro-rata rule. The statute is the aggregation rule. Form 8606 is the worksheet.
How does Form 8606 compute the taxable share?
Form 8606 Part I divides your after-tax basis by the combined year-end pile, then applies that decimal to the amount you converted.
On the 2025 form:
- Line 1 is the nondeductible contribution for the year, including a contribution made by the next April filing deadline for that year.
- Line 2 is prior-year basis.
- Line 5 is the basis that counts in this year’s fraction. It drops contributions made in the next calendar year for this tax year.
- Line 6 is the December 31 value of all traditional, SEP, and SIMPLE IRAs.
- Line 8 is the net amount converted to Roth.
- Line 9 adds line 6, other distributions on line 7, and the conversion on line 8.
- Line 10 is line 5 divided by line 9, as a decimal to at least 3 places.
- Line 11 is the nontaxable part of the conversion (line 8 times line 10).
- Line 18 is the taxable part: the conversion minus line 11. That amount goes to Form 1040, line 4b.
Take a $7,500 nondeductible contribution and a $92,500 pre-tax traditional IRA from an old 401(k) rollover. You convert $7,500. On December 31 the remaining IRA value is $92,500. Line 9 is $100,000. Line 10 is 0.075. The nontaxable part is $562.50. The taxable part is $6,937.50.
The two-step funded $7,500 of Roth space. $6,937.50 of it was a taxable conversion of pre-tax dollars. Most of the after-tax basis stays in the IRA for a later year.
A contribution made from January 1 through the April filing deadline for the prior year sits on line 1 and line 4 and raises basis for later years. Time the contribution and the conversion in the same calendar year if you want that year’s basis in the fraction.
Publication 590-A requires Form 8606 when you make a nondeductible traditional IRA contribution. The 2025 instructions charge a $50 penalty if you were required to file and did not, unless you show reasonable cause. Overstating nondeductible contributions is a $100 penalty under those same instructions.
What if an old 401(k) rollover sits in a traditional IRA?
Most of the conversion is taxable, because that rollover is in the December 31 pile on line 6.
A 401(k) balance enters the pile once those dollars roll into a traditional IRA. SEP and SIMPLE IRAs are inside it. Each spouse files a separate Form 8606.
High-income W-2 years often have an old 401(k) sitting in an IRA from a job change. See tax strategies for high-income W-2 employees for how this two-step sits next to a pretax 401(k) and HSA on 1 yearly plan.
Should you empty pre-tax IRA balances before you contribute?
Yes. Empty the pre-tax pile, or skip the two-step this year.
The common path is a rollover of pre-tax traditional, SEP, or SIMPLE IRA dollars into a current 401(k) that accepts incoming IRA rollovers. Form 8606 line 6 is IRA value. A completed rollover to a qualified plan is out of that line. The 2025 instructions also say not to include an outstanding rollover from a traditional IRA to a qualified retirement plan on line 6.
The plan has to accept the incoming rollover. Ask the administrator before you move money. After-tax IRA basis stays in the IRA. Roll the pre-tax dollars. Convert the after-tax dollars after the pre-tax dollars have left. A rollover from a traditional SIMPLE IRA to a qualified plan can take place only after the first 2 years of participation, per the Form 8606 instructions.
The measurement date is December 31 of the conversion year. A rollover that posts in January is in that year’s pile. Start the rollover early enough for the plan to post it.
If the 401(k) will not take the incoming rollover, you have 2 choices: convert the pre-tax balance and pay the tax, or skip the backdoor Roth this year. A conversion made in 2018 or later cannot be recharacterized. Model the tax before you move the money.
Does your spouse’s IRA count in your pile?
No. Form 8606 is per person.
Your line 6 includes a pretax IRA in your name. Inherited IRAs from a decedent are reported on a separate Form 8606 for that decedent, per the form instructions. Use the instructions for the year you file.
What MAGI number sends people to the backdoor?
Roth IRA MAGI on Publication 590-A Worksheet 2-1.
That worksheet starts from Form 1040 AGI, subtracts taxable Roth conversions, and adds items such as the traditional IRA deduction. A year with a conversion can look over the Roth phaseout on line 11 and under it on Worksheet 2-1. The 2026 phaseout dollars are in the section above. What is MAGI? walks through that worksheet and the other MAGI tests that share the name.
How does Nino decide the two-step before you fund it?
Nino models Form 8606 against every traditional, SEP, and SIMPLE IRA on the household file, with a CFP and a CPA on the same numbers for 1 flat annual fee.
The decision is whether the pile is empty enough for the conversion to stay mostly nontaxable, or whether this year should skip the two-step.
Book a demo if you want that test before you contribute. Every Advisor Plan includes a 30-day money-back guarantee.