In 2026, Roth IRA income limits phase out at $150,000 (single) and $236,000 (married). High earners above these limits can still access Roth's tax-free growth through the backdoor Roth — a two-step legal strategy the IRS has explicitly approved.
How the backdoor Roth works in 3 steps
- Contribute to a traditional IRA (non-deductible): Since you're above Roth income limits, you can't contribute directly. Instead, contribute up to $7,000 ($8,000 if 50+) to a traditional IRA without taking a deduction. Anyone can do this regardless of income.
- Wait 1–30 days: Some CPAs recommend a brief waiting period to avoid "step transaction" arguments with the IRS, though there's no legal requirement.
- Convert to Roth IRA: At your broker, convert the traditional IRA balance to Roth. If you contributed $7,000 with no earnings, you pay $0 in taxes on the conversion.
The pro-rata rule: the trap that catches people
If you have any pre-tax money in any traditional IRA, SEP IRA, or SIMPLE IRA, the IRS applies the pro-rata rule. You can't choose to only convert the non-deductible portion — the conversion is taxed proportionally across all IRA money.
Example: You have $63,000 in a rollover IRA (pre-tax) and contribute $7,000 non-deductible. Total IRA = $70,000. The $7,000 conversion is 10% of the total — so 90% is taxable. You owe taxes on $6,300 of the $7,000 conversion. The backdoor doesn't work cleanly if you have existing pre-tax IRAs.
The solution to the pro-rata problem
Roll your pre-tax IRAs into your employer 401(k) or 403(b) (if accepted). Once the pre-tax IRA is gone, the backdoor Roth conversion is 100% clean.
The Mega Backdoor Roth (for 401k plans that allow it)
Some 401(k) plans allow after-tax contributions above the normal $23,500 limit (up to the $70,000 total limit in 2026). If your plan also allows in-plan Roth conversions or in-service withdrawals, you can convert up to $46,500 of after-tax contributions to Roth annually. This is the mega backdoor — and it's only available in specific employer plans. Ask your HR department or plan administrator if your plan supports it.
The backdoor Roth should be an annual event — contribute January 1, convert January 2-31, repeat every year. Over 20 years of $7,000 backdoor contributions growing tax-free at 7%: approximately $288,000. The tax-free compounding on this is substantial for high earners who would otherwise pay 22–37% on withdrawals from traditional accounts.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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