---
title: Backdoor Roth IRA — what it means and why it matters | Allocate AI
description: A way for people above the Roth IRA income limit to still fund one: contribute to a traditional IRA without a deduction, then convert it to Roth.
canonical: https://allocateai.io/glossary/backdoor-roth
site: Allocate AI — https://allocateai.io
---

# Backdoor Roth IRA

A way for people above the Roth IRA income limit to still fund one: contribute to a traditional IRA without a deduction, then convert it to Roth.

A backdoor Roth is a two-step route into a Roth IRA for people whose income is too high to contribute directly. Step one: contribute to a traditional IRA, up to $7,500 in 2026 (plus $1,100 if 50 or older). At high incomes the contribution is not deductible, so it goes in as after-tax money. Step two: convert the traditional IRA to a Roth IRA. Since the money was already taxed, the conversion owes little or nothing.

The step that trips people up is the pro-rata rule. The IRS looks at all your traditional, SEP, and SIMPLE IRAs together when you convert. If you have $92,500 of pre-tax money in an old rollover IRA and add a $7,500 non-deductible contribution, only 7.5% of any conversion is tax-free. Converting $7,500 would create about $6,900 of taxable income. The usual fix is to roll the pre-tax IRA into a current 401(k) first, leaving the IRA balance at zero before the backdoor.

Done cleanly, it adds $7,500 a year of tax-free growth. Over 25 years at 7%, that is roughly $475,000 that will never be taxed again.

The common mistakes are ignoring the pro-rata rule, forgetting to file Form 8606 to document the non-deductible contribution (which can lead to being taxed twice), and letting the contribution sit uninvested in the traditional IRA long enough to earn taxable gains before converting.

## Related terms

- [IRA (individual retirement account)](https://allocateai.io/glossary/ira) — A retirement account you open yourself at a brokerage, separate from any employer, with a $7,500 yearly limit (2026) and traditional or Roth tax treatment.
- [Mega backdoor Roth](https://allocateai.io/glossary/mega-backdoor-roth) — A strategy for putting far more than the normal limit into Roth savings by making after-tax 401(k) contributions and converting them to Roth.
- [Traditional vs Roth](https://allocateai.io/glossary/traditional-vs-roth) — The choice between paying tax on retirement savings later (traditional) or now (Roth); it usually comes down to your tax rate today versus in retirement.

**Plan in plain language.**

Allocate answers “can I afford this?” from your own numbers, writes the plan, and stages every change for your yes. It starts from an estimate before you link a bank.

[Get started](https://app.allocateai.io/signup)

---

Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.