Backdoor Roth IRA: Pro-Rata Rule and Form 8606

The two steps

1. Contribute to a traditional IRA and don't deduct it. If you or your spouse has a workplace plan and your income is above the deduction range, the contribution isn't deductible anyway. It becomes after-tax basis, reported on Form 8606 Part I.
2. Convert to a Roth IRA. There's no income limit on conversions. The basis part isn't taxed again; any pre-tax part (including any earnings before you convert) is taxable. Reported on Form 8606 Part II.

For how direct Roth contributions and deductions work, see Traditional vs. Roth IRA.

The pro-rata rule

You can't convert only your after-tax dollars. Form 8606 treats all your traditional IRAs (including SEP and SIMPLE IRAs) as one pot and figures a tax-free ratio:

That share of the conversion is tax-free; the rest is taxable. Because the December 31 value is used, an existing pre-tax IRA (such as an old 401(k) rolled into an IRA) changes the result even if it sits in a different account at a different company. Money in a workplace plan such as a 401(k) isn't a traditional IRA, so it isn't part of that value.

A Trump account is a traditional IRA, but IRS Notice 2025-68 says it is never aggregated with other IRAs when allocating basis. Your spouse's IRAs aren't combined with yours either.

Worked example

A single filer makes a $7,500 nondeductible contribution in 2026 and converts the $7,500 later in 2026 (assume no earnings in between). Compare having no other IRAs with also having a $92,500 pre-tax rollover IRA on December 31:

With the rollover IRA, 92.5% of the conversion is taxable. The unused $6,937.50 of basis isn't lost; it carries forward on line 14 and is used against future withdrawals or conversions. To see the tax on a result like this, use the Roth conversion tax estimator.

Filling in Form 8606

• Part I reports the nondeductible contribution (line 1) and your basis, and runs the pro-rata math (lines 6 to 13) when you also take a distribution or convert.
• Line 6 is the total value of all your traditional IRAs on December 31, plus any outstanding rollovers. Your year-end statements show it.
• Part II reports the conversion: line 16 is the amount converted, line 17 the basis part, line 18 the taxable amount that goes on your Form 1040.
• A contribution made between January 1 and April 15 for the prior year goes on line 1 for the prior year and line 4.
• Not filing Form 8606 when required for a nondeductible contribution: $50 penalty. Overstating nondeductible contributions: $100. Both unless you show reasonable cause.
• Keep copies of every Form 8606, Forms 5498 and 1099-R, and year-end statements. They prove your basis years later.

Common issues

• Forgetting a SEP or SIMPLE IRA. They count on line 6.
• Earnings before the conversion. Any growth between contributing and converting is taxable.
• Missing the 8606. Without it, your basis isn't on record and could be taxed again later.
• Under 59½. The taxable part of each conversion has its own 5-year clock for the 10% additional tax if withdrawn early. See the Roth conversion guide.
• No undo. Conversions made in 2018 or later can't be recharacterized.

This page explains how the reporting works. It doesn't recommend doing a backdoor Roth.