Backdoor Roth IRA and the Pro-Rata Rule: What the Sources Say

You may have heard of a "backdoor Roth IRA" and a "pro-rata rule." Neither phrase is an official IRS name. This guide explains the pieces behind them using IRS and statute text. Some points here involve how tax rules fit together, so we label them as our interpretation and show the source. Tax law is technical. This page explains rules only and is not advice for any person. A qualified tax professional should review your own facts.

What do people mean by a "backdoor Roth IRA"?

The phrase usually describes two ordinary steps used together:

1. A contribution to a traditional IRA that you do not deduct (a "nondeductible" contribution).
2. A later conversion of that traditional IRA money to a Roth IRA.

Each step has its own IRS rules. The strategy is simply the two combined. We did not find the IRS describing the combination as a named strategy in the pages we read, so treat the name as a nickname.

Why do people talk about a "backdoor" at all?

Roth IRA contributions are limited by income. The IRS sets "modified adjusted gross income" (modified AGI) ranges in which the allowed contribution shrinks and then ends. For 2026, IRS Notice 2025-67 lists these ranges:

The same notice raises the IRA limit from $7,000 to $7,500 for 2026, with a catch-up of $1,100 at age 50 and older. The notice's wording for those two figures is about the section 219(b)(5)(A) deduction amount and the age-50 catch-up; for the full contribution rules, see our Roth vs traditional IRA guide.

People often use the "backdoor" nickname in connection with these income ranges, which the pages we read set for Roth contributions. We did not confirm, in the pages we opened, what the rules say about income and conversions, so we do not state a rule on that here. Check it with a tax professional.

How does a nondeductible traditional IRA contribution work?

Publication 590-A says "you can never deduct contributions to a Roth IRA." For a traditional IRA, the contribution may or may not be deductible. The publication says: "To designate contributions as nondeductible, you must file Form 8606." (Pub. 590-A)

A nondeductible contribution creates what the IRS calls basis. Pub. 590-A says: "Your cost basis is the sum of the nondeductible contributions to your IRA." It also says you do not include in gross income any part of a distribution from a traditional IRA "that is a return of your basis." The Form 8606 instructions define it in similar words: "Your basis in traditional IRAs is the total of all your nondeductible contributions" minus the total of all your nontaxable distributions.

In plain terms, basis is money you already paid tax on. Getting it back is not taxed a second time.

What happens when you convert to a Roth IRA?

A conversion moves money from a traditional IRA to a Roth IRA. Pub. 590-A says that when you convert, "a part or all of the distribution from your traditional IRA may be included in gross income." The Internal Revenue Code says that for a distribution from an eligible retirement plan (other than a Roth IRA) that is rolled over to a Roth IRA, "there shall be included in gross income any amount which would be includible" if it were not rolled over (26 U.S.C. § 408A(d)(3)).

If you converted in 2025, the Form 8606 instructions say you must file the form, and line 8 asks for "the net amount you converted." Those instructions are for 2025 conversions, so the 2026 edition should be checked when it is released.

Pub. 590-A also says conversions "aren't limited" by the one-rollover-per-year rule that applies to IRA-to-IRA rollovers. That is a separate rule from the tax on the conversion.

What is the pro-rata rule?

This is the part that surprises many people. "Pro rata" means "in proportion." The name is not in the Code. The idea comes from section 408(d)(2), which says that for applying the basic tax rules to IRA distributions:

• "all individual retirement plans shall be treated as 1 contract,"
• "all distributions during any taxable year shall be treated as 1 distribution," and
• "the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins."

(26 U.S.C. § 408(d)(2))

The Form 8606 instructions point the same way. They say "traditional IRA" includes traditional SEP IRAs and traditional SIMPLE IRAs. For 2025, line 6 asks for "the total value of all your traditional IRAs as of December 31, 2025, plus any outstanding rollovers."

Our interpretation: because section 408(d)(2) treats all individual retirement plans as one contract (and the Form 8606 instructions count traditional, SEP and SIMPLE IRAs together), your nondeductible basis is not tied to a single account. If you also hold pre-tax money in a traditional, SEP or SIMPLE IRA, a conversion is not treated as coming only from the after-tax dollars. Part of it may be taxable. The share depends on how your basis compares with your total traditional IRA value counted at year-end.

A simple illustration (hypothetical numbers)

These numbers are made up to show the idea. They are not a tax calculation, and Form 8606 controls the real result.

On our reading, only about 7.5% of a conversion would be tax-free return of basis in this example, and the rest would be taxable. Someone with no other traditional, SEP or SIMPLE IRA money would see a very different result. The exact steps are on Form 8606 and depend on timing and year-end values, so use the form's instructions or a professional.

What mistakes and edge cases come up?

• Forgetting the form. Basis exists on paper only if you report nondeductible contributions on Form 8606, as Pub. 590-A says.
• Overlooking other IRAs. On our reading, the one-contract wording of section 408(d)(2), together with the Form 8606 instructions, is why SEP and SIMPLE IRAs and old rollover IRAs may matter.
• Mixing up contribution and conversion rules. The Roth income ranges above apply to contributions. A conversion is taxed under section 408A(d)(3), shown above; we did not confirm how income limits apply to it.
• Assuming a year-end balance equals the balance on the conversion date. The Code measures value "as of the close of the calendar year." The Form 8606 instructions add outstanding rollovers.
• Treating a nickname as a legal term. Do not assume that every detail of a popular strategy has been confirmed by the IRS. We did not find IRS guidance in the pages we read that names or approves the strategy.

Questions to take to a professional

• Do I have any traditional, SEP or SIMPLE IRA money, and how does it affect a conversion?
• Which Form 8606 edition applies to my year, and who will prepare it?
• How would a conversion change my modified AGI and my other tax items this year?
• Could a workplace plan that accepts rollovers change the picture? See IRA vs 401(k).
• How does this fit with a spouse's account? See the spousal IRA guide.

For the dates that matter near the end of the year, see the year-end retirement account dates. The full series is in our retirement planning guide.

Where gold and silver IRAs fit - and where they do not

The rules above describe how money moves between traditional and Roth IRAs. They do not choose what an IRA holds. Some self-directed IRA custodians offer approved precious metals, and whether a given account does depends on the custodian and the account type.

People who consider gold and silver for retirement savings usually point to diversification, periods of high inflation, and the appeal of a tangible asset. These are arguments, not promises, and this site does not forecast prices. Costs, risks and IRS rules apply to any such account, and we did not cite sources for them on this page. Our guides to Roth gold IRAs, Roth conversions with gold and silver, gold IRA fees and gold IRA risks cover them with sources. This site does not say whether metals suit any one person.

What we did not check

We read the 2025 Form 8606 instructions and the 2025 Publication 590-A only in part (pages are very long), so the step-by-step line calculation for a conversion was not read and is not given here. We did not read IRS statements on whether income limits apply to conversions, early-withdrawal or five-year rules for converted amounts, state taxes, or any proposed law changes. Pub. 590-A figures are from the 2025 edition. Confirm everything with the IRS and a qualified tax professional.