Main Street Business #638 What is a Backdoor Roth and How do you fund it
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Sep 24, 2026 Explore the backdoor Roth strategy for high-income earners, from nondeductible IRA contributions and Roth conversions to Form 8606 reporting. The discussion covers the pro rata rule, using a 401(k) to sidestep tax complications, and the powerful mega backdoor Roth. Examples show how employees and small business owners can coordinate payroll, employer contributions, and after-tax funding.
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A Backdoor Roth Is A Two-Step Strategy
- A backdoor Roth is a funding strategy, not a separate account.
- It combines a nondeductible traditional IRA contribution with a Roth conversion to bypass direct-contribution income limits.
Fund A Backdoor Roth In Two Steps
- Contribute to a traditional IRA without claiming a deduction, then convert the contribution to Roth shortly afterward.
- File Form 8606 to document the nondeductible contribution and conversion.
The Pro Rata Rule Changes Roth Taxes
- The pro rata rule can make Roth conversions taxable when other traditional IRA, SEP, or SIMPLE balances exist.
- Tax law considers those IRA funds together rather than isolating only the new nondeductible contribution.