Backdoor and mega-backdoor Roth contributions

A Roth account is taxed up front. Money goes in after tax, grows without tax, and comes out tax-free in retirement if you follow the rules. That makes Roth savings valuable, especially if you expect a high tax rate later or want to leave tax-free money to heirs.

There's a catch. Above certain incomes, you can't contribute to a Roth IRA directly. Two well-known workarounds get money into Roth accounts anyway: the backdoor Roth and the mega-backdoor Roth. Both are legal, both rely on Roth conversions, and both have traps that can turn a tax-free move into a taxable one.

Who can't contribute to a Roth IRA directly

The amount you can put into a Roth IRA shrinks as your modified adjusted gross income (MAGI) rises, and then it stops. For 2026:

The IRA contribution limit for 2026 is $7,500, plus $1,100 if you're 50 or older.

There's no income limit on Roth conversions, though. That's the opening both strategies use.

How a backdoor Roth works

A backdoor Roth takes two steps:

1. Make a nondeductible contribution to a traditional IRA. Anyone with earned income can contribute to a traditional IRA. If your income is too high to deduct it, the contribution simply goes in after tax. You report it on Form 8606, which records your after-tax basis.
2. Convert that IRA to a Roth IRA. Because the contribution was already taxed, converting it adds little or no tax. Only growth between the two steps is taxable.

Most people convert soon after contributing, so there's little growth to tax.

The pro-rata rule

The trap is the pro-rata rule. When you convert, the IRS doesn't let you choose to convert only your after-tax dollars. It looks at all your traditional, SEP and SIMPLE IRAs together, as of December 31 of the year you convert. The tax-free share of any conversion is your total after-tax basis divided by that combined balance.

If you have a large pre-tax IRA, perhaps from rolling over an old 401(k), most of a backdoor conversion becomes taxable.

Employer plans such as 401(k)s don't count in this calculation. So one common fix is to roll pre-tax IRA money into your current employer's 401(k) before year end, if the plan accepts roll-ins. That leaves only after-tax money in your IRAs.

A worked example: the backdoor

Marcus and Priya file jointly. Their MAGI is $300,000, well above the $252,000 cutoff. Each wants to put $7,500 into Roth savings this year.

Priya has no other IRAs. She contributes $7,500 to a new traditional IRA and converts it a week later, when it's worth $7,510. Only the $10 of growth is taxable.

Marcus has a $92,500 traditional IRA from an old job, all pre-tax. If he does the same thing, his year-end IRA total is $100,000 with $7,500 of basis.

Without the fix, Marcus pays tax on $6,937.50 at their 24% marginal rate, about $1,665 of federal tax. The rest of his basis stays in the old IRA and comes out tax-free later, a little at a time. With the roll-in, the whole conversion is tax-free.

How a mega-backdoor Roth works

Some 401(k) plans allow a third kind of contribution besides pre-tax and Roth: after-tax, non-Roth money. It counts toward the overall limit on what you and your employer can add to the plan in a year, which is $72,000 for 2026. Your regular deferral limit is $24,500.

The room between the two limits can be large. A mega-backdoor Roth fills it with after-tax contributions, then moves them to Roth quickly. Two ways to move the money:

• In-plan Roth conversion: the plan converts the after-tax money into its Roth 401(k) option.
• In-service withdrawal: you roll the after-tax money to a Roth IRA while still working.

Your plan must allow both after-tax contributions and one of those moves. Many plans don't. Your plan's summary plan description, or its administrator, will tell you.

Worked example: the mega-backdoor

Priya is 45. Her plan allows after-tax contributions and automatic in-plan Roth conversions.

Each paycheck's after-tax contribution converts the same day, so almost nothing grows before the conversion. Over the year, $38,000 lands in her Roth 401(k). Earnings that build up before a conversion are taxable when converted, which is why fast or automatic conversion matters.

Catch-up contributions for people 50 and older sit outside the annual additions limit, so they don't reduce this room.

Things to check before you start

• Year-end IRA balances. The pro-rata rule uses December 31 values, so a rollover in January of the next year is too late for this year's conversion.
• Form 8606. File it every year you make a nondeductible contribution or convert. It's how you prove your basis later.
• The five-year clock. Each conversion starts its own five-year period. If you're under 59.5, withdrawing a conversion's taxable part within five years can bring the 10% early-withdrawal penalty.
• Your spouse's IRAs don't count. The pro-rata rule applies to each person separately.
• Plan testing. After-tax 401(k) contributions are subject to nondiscrimination testing. Some plans refund part of them to higher earners after year end.

How the app handles backdoor contributions

Each traditional IRA and employer plan account has an after-tax basis field. That's the money inside that was already taxed, such as your Form 8606 basis or after-tax 401(k) money.

When the projection takes a withdrawal or a Roth conversion from an IRA, it applies the pro-rata rule at year end. It combines all of that person's traditional, SEP and SIMPLE IRAs. For employer plans, it splits each distribution in proportion to that account's basis. Each conversion starts its own five-year clock on its taxable part.

The app doesn't test whether your income allows a direct Roth IRA contribution, and it doesn't apply the phase-outs for deducting a traditional IRA contribution. With no other pre-tax IRA money, a backdoor contribution ends up where a direct Roth IRA contribution would. So you can enter it that way.

Frequently asked questions

Is the backdoor Roth allowed?

Yes. The income limit on Roth conversions ended in 2010, and both steps are allowed on their own. Keep records, and file Form 8606 each year.

Does a 401(k) balance affect my backdoor Roth?

No. The pro-rata rule counts only traditional, SEP and SIMPLE IRAs. That's why rolling an old IRA into a 401(k) can clear the way.

Can I do both in the same year?

Yes. The backdoor uses IRA limits and the mega-backdoor uses your 401(k)'s annual additions limit. They don't reduce each other.