Question 1

What is the backdoor Roth — and why does it exist?

Accepted Answer

The backdoor Roth is a two-step workaround that allows high-income earners to fund a Roth IRA even though their income exceeds the direct-contribution phase-out limits. For 2026, the Roth IRA direct-contribution phase-out begins at $150,000 MAGI for single filers and $236,000 for married-filing-jointly (indexed for inflation annually under IRC §408A(c)(3)). Once your income is above those limits, you cannot contribute directly to a Roth IRA. The workaround: (1) make a non-deductible contribution to a traditional IRA — there is no income limit on non-deductible traditional IRA contributions under IRC §219 — and (2) convert that traditional IRA balance to a Roth IRA. Because you already paid tax on the contributed amount (it was not deductible), it should convert tax-free. The catch is the pro-rata rule, which this calculator specifically addresses. Congress has been aware of the backdoor Roth technique for decades and has not moved to close it — including under SECURE 2.0. Per Mike Piper (Oblivious Investor), *The Individual 401(k)* (obliviousinvestor.com, 2024): 'One of the biggest benefits of being self-employed is that there are more (and better) retirement plan options available to you than are available to most taxpayers.' The backdoor Roth is one of those options. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 2

What is the pro-rata rule?

Accepted Answer

The pro-rata rule under IRC §408(d)(2) requires that every dollar you withdraw or convert from any IRA be treated as coming pro-rata from the mix of pre-tax and after-tax dollars across ALL your traditional, SEP, and SIMPLE IRAs combined — not just the specific account you are converting. The IRS treats all your IRAs as a single aggregated pool for this purpose regardless of which custodian holds them. The formula is straightforward: taxable fraction = (total pre-tax balance across all IRAs) ÷ (total balance across all IRAs including after-tax basis). If your total IRA balance is $100,000 and your after-tax basis is $7,000, then 7% of any conversion is non-taxable and 93% is taxable — even if you contributed the $7,000 to a separate account that you are trying to convert cleanly. Per Michael Kitces, *Nerd's Eye View* (kitces.com): his detailed 2014 analysis of the backdoor Roth explains that 'the pro-rata rule means the conversion will be tainted by the existing pre-tax IRA balance.' This is the core calculation this tool automates. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 3

Why does my SEP-IRA or SIMPLE IRA balance affect my backdoor Roth?

Accepted Answer

This surprises many self-employed people who have a SEP-IRA for retirement savings and assume it is separate from a traditional IRA they opened at a different institution for the backdoor Roth. Under IRC §408(d)(2), the aggregation rule explicitly lumps all IRAs of the same type together: traditional IRAs + SEP-IRAs + SIMPLE IRAs all count as one pool. (SIMPLE IRA balances count only after the account has been open for two years, at which point they are treated identically to traditional IRA balances for aggregation purposes.) Roth IRAs are not included in the pool, and employer-sponsored plans like Solo 401(k)s are also not included — they are a completely separate bucket. This distinction is the reason that the most common workaround for large pre-tax IRA balances is to roll those balances into a Solo 401(k) or employer 401(k): once the money is out of the IRA world and into a qualified plan, the pro-rata denominator drops to zero, clearing the way for a clean backdoor Roth. This calculator shows you the pro-rata math at your current balance so you can see exactly how much 'taint' exists before deciding whether to execute the rollover workaround first. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 4

How do I calculate the taxable portion of a conversion?

Accepted Answer

The IRS formula from Form 8606 Part II applies: (1) add up the December 31 value of all your traditional, SEP, and SIMPLE IRAs — this is the denominator; (2) your total after-tax basis tracked on Form 8606 Line 14 is your non-taxable pool; (3) the non-taxable fraction of any conversion = basis ÷ (total IRA balance + conversion amount). For example: you have $90,000 in a pre-tax SEP-IRA, you made a $7,000 non-deductible traditional IRA contribution this year, and you convert that $7,000. Total IRA pool = $90,000 + $7,000 = $97,000. Non-taxable fraction = $7,000 ÷ $97,000 = 7.22%. Non-taxable portion of the conversion = $7,000 × 7.22% = ~$505. Taxable portion = $7,000 - $505 = $6,495. You pay ordinary income tax on $6,495, not zero. This is why a large SEP-IRA balance nearly eliminates the tax benefit of the backdoor Roth without the 401(k) rollout strategy. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 5

What is Form 8606 and how does basis carry forward?

Accepted Answer

IRS Form 8606 (Nondeductible IRAs) is the tracking mechanism for your after-tax basis in traditional IRAs. You file it every year in which you make a non-deductible IRA contribution (Part I), do a Roth conversion (Part II), or take a distribution from a traditional IRA that has any non-deductible basis (Part III). The critical line is Line 14: your remaining basis after accounting for any conversions or distributions in the current year. That remaining basis carries forward to next year's Form 8606 Line 2 — it is never lost as long as you file the form correctly. A common mistake is failing to file Form 8606 in a year when you made a non-deductible contribution. The IRS charges a $50 penalty for each missed filing, but more importantly, if you lose track of your basis, you may pay tax twice on the same dollars — once when you contributed them and again when you distribute them. The Form 8606 instructions are the primary IRS source for the pro-rata calculation methodology, and this calculator replicates that exact math. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 6

What is the workaround for high pre-tax IRA balances?

Accepted Answer

The standard workaround is to roll your pre-tax traditional IRA, SEP-IRA, or SIMPLE IRA balance into a workplace 401(k) or Solo 401(k) that accepts incoming rollovers. Under IRC §402(c)(8)(B), pre-tax amounts from an IRA can be rolled into an eligible employer plan, emptying the IRA bucket. Once that balance leaves the IRA world, it no longer counts in the pro-rata denominator — your IRA pool drops to zero (or near-zero), and your backdoor Roth conversion becomes fully non-taxable. Important mechanics: (1) only pre-tax amounts can roll into a 401(k) — after-tax basis stays in the IRA and remains available for a clean backdoor Roth; (2) the 401(k) plan document must explicitly allow incoming IRA rollovers (most Solo 401(k) plans at major custodians do, but verify with the plan administrator); (3) SIMPLE IRA balances cannot roll into a 401(k) until the SIMPLE IRA has been open for at least two years. For self-employed operators, the Solo 401(k) is the most practical destination. Per Jeffrey Levine (Ed Slott & Co.), *Backdoor Guide to a Roth IRA* (irahelp.com): the recommendation is to complete the rollout of pre-tax IRA balances into the 401(k) before making the non-deductible contribution, so the December 31 IRA balance used in the pro-rata calculation reflects the already-empty IRA. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 7

What is the mega backdoor Roth — and how is it different?

Accepted Answer

The standard backdoor Roth works through the IRA system: non-deductible IRA contribution + immediate Roth conversion, limited to the annual IRA contribution ceiling ($7,000 in 2026; $8,000 if 50+). The mega backdoor Roth operates through a Solo 401(k) or employer 401(k) plan that permits after-tax contributions beyond the normal pre-tax and Roth deferral limits. Under IRC §415(c), total 401(k) contributions — from all sources including after-tax — can reach $70,000 in 2026 ($77,500 with catch-up). If you have already maxed your $23,500 employee deferral and the employer match, the remaining room (potentially $40,000+ for a Solo 401(k)) can be filled with after-tax contributions. Those after-tax contributions are then converted to Roth — either inside the plan (an in-plan Roth conversion) or by rolling them out to a Roth IRA. Per Jeffrey Levine (Ed Slott & Co.), *Backdoor Guide to a Roth IRA* (irahelp.com): after-tax 401(k) amounts designated for Roth rollover must be separated from pre-tax amounts; IRS Notice 2014-54 confirmed that the two can leave the plan in separate checks on the same day, allowing the after-tax portion to go to Roth IRA and the pre-tax portion to roll to a traditional IRA. The mega backdoor Roth does not use Form 8606 or the pro-rata rule — it is entirely a 401(k) mechanism. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

Question 8

Should I wait between the IRA contribution and the Roth conversion to avoid the step-transaction doctrine?

Accepted Answer

The step-transaction doctrine is an IRS principle that can recharacterize a series of individually permissible steps as a single transaction with a different tax outcome — here, treating the non-deductible contribution + immediate conversion as a direct Roth IRA contribution (which would be prohibited if your income is above the limit). In practice, the IRS has never successfully applied the step-transaction doctrine to disallow a backdoor Roth executed through the proper two-step sequence. The Tax Court has not ruled against it, and IRS publications acknowledge the mechanism. Per Michael Kitces, *Nerd's Eye View* (kitces.com), discussing his detailed 2014 analysis of the backdoor Roth: the step-transaction risk is low enough in practice that most tax professionals are comfortable with the technique, particularly if a brief waiting period separates contribution from conversion. Per Jeffrey Levine (Ed Slott & Co.), *Backdoor Guide to a Roth IRA* (irahelp.com): waiting for 'one statement' — until the end of the month in which the contribution was made, so a brokerage statement exists showing the IRA contribution — is generally considered sufficient timing separation to demonstrate a two-step sequence rather than a single transaction. There is no IRS-mandated minimum waiting period; the 'one statement' guideline is practitioner convention, not law. Converting immediately is also common and widely practiced without IRS challenge. Consult a licensed CPA, Enrolled Agent, or financial planner before executing any IRA conversion. This is an estimator, not tax advice.

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