Inevitably, several times a year when a client brings up contributing to their Roth IRA, we run into the problem where they make too much money to directly contribute. The good news is that there are multiple ways to accumulate Roth assets even if you are above the adjusted gross income (AGI) limit.
The Backdoor Roth: The Quick Answer
For 2026, if you’re single and your modified adjusted gross income is above $168,000, or married filing jointly above $252,000, you can’t contribute to a Roth IRA directly. Full stop, that door is shut.
But here’s the part that surprises people: there’s no income limit on who can contribute to a traditional IRA, only on whether that contribution is tax deductible. So the workaround, and it’s a completely legal, IRS-sanctioned workaround, is to contribute to a traditional IRA with after-tax dollars, then convert that money to a Roth IRA shortly after. That’s the entire backdoor Roth. It sounds like a loophole. It’s really just a two-step process the tax code happens to allow.
How It Actually Works, Step by Step
- Contribute to a traditional IRA. Up to $7,500 for 2026, or $8,600 if you’re 50 or older. Since you’re above the income limit for a deduction anyway, this contribution is nondeductible, meaning you’re funding it with money you’ve already paid tax on.
- Convert it to a Roth IRA. Usually done within days or weeks of the contribution, before any real growth accumulates, so there’s little to no additional tax owed on the conversion itself.
- File Form 8606. This is the step I see people miss more than any other, and it’s the one that actually protects you.
Why Form 8606 Actually Matters
Form 8606 is how you tell the IRS “this contribution was already taxed, don’t tax it again.” It tracks your basis, the after-tax money you’ve put into traditional IRAs over the years, so that when you eventually convert or withdraw it, only the growth gets taxed, not the whole amount.
Here’s what happens if you skip it. Say you convert $7,500 and never file the form. Ten years later, the IRS has no record that money was already taxed. Now you, or your executor, have to reconstruct a decade of contribution history to prove you don’t owe tax twice on the same dollars. I’ve had to help clients dig through old brokerage statements to fix this after the fact, and it’s a genuinely avoidable headache. File the form the year you do the conversion. It’s one page.
The Pro-Rata Rule: The Part That Trips Up Even Sophisticated Clients
This is the section I’d ask you to read twice, because it’s the single most common way a backdoor Roth goes sideways, and it has nothing to do with doing the steps wrong. It has to do with what else you own.
The IRS doesn’t look at your backdoor Roth contribution in isolation. When you convert, the IRS requires you to look at the value of all traditional, SEP, and SIMPLE IRAs you own, combined, as of December 31st of the conversion year, not just the new contribution you’re converting. That total balance determines what percentage of your conversion is taxable versus tax free.
Here’s the formula in plain terms: divide your after-tax basis (the nondeductible contributions you’ve made and tracked on Form 8606) by the total value of all your traditional IRAs. That percentage is the portion of any conversion that comes out tax free. The rest is taxed as ordinary income, even though you intended to convert only the new, already-taxed contribution.
A real example. Say you contribute $7,500 to a traditional IRA with the intent to convert it right away, a clean backdoor Roth. But you also have an old rollover IRA sitting from a previous employer’s 401(k), worth $92,500. Your total traditional IRA balance is now $100,000, of which $7,500, or 7.5%, is after-tax basis. When you convert the $7,500, the IRS doesn’t let you say “this is the after-tax money, tax me on none of it.” Instead, only 7.5% of the conversion is tax free. The other 92.5% gets taxed as ordinary income, even though you only converted the new contribution. Worse, that remaining basis doesn’t disappear, it stays on your Form 8606 and continues muddying every future conversion until the pre-tax balance is gone.
This catches people who did everything else right. They funded the IRA correctly, they converted quickly, they filed the form. They just didn’t realize an old 401(k) they rolled into an IRA years ago, for reasons that made sense at the time, was quietly sitting there turning a clean backdoor Roth into a partially taxable one.
How to actually avoid this. The pro-rata rule only counts traditional, SEP, and SIMPLE IRAs. It does not count money sitting inside an employer 401(k) or a Solo 401(k), those are qualified plans, not IRAs, and they sit outside this calculation entirely. If you have an old rollover IRA and your current employer’s 401(k) plan accepts incoming rollovers, moving that pre-tax IRA balance into the 401(k) before you do a backdoor Roth conversion can clear the way for a genuinely clean, fully tax-free conversion going forward. This is exactly the kind of situation where the Solo 401(k) has an edge too, which I touched on a few weeks ago comparing SEP-IRAs and Solo 401(k)s, since a SEP-IRA balance counts against you here in a way a Solo 401(k) never does.
Before you do a backdoor Roth for the first time, or even before your next one if you already have this on autopilot, it’s worth an actual look at whether you’re carrying any old pre-tax IRA balances that could turn a clean conversion into a partially taxable one.
The Mega Backdoor Roth: Your 401(k) Might Have More Room Than You Think
This is the one almost nobody asks me about, mostly because almost nobody knows to ask. Most people think their 401(k) contribution room stops at the employee deferral limit, $24,500 for 2026. That’s true for pre-tax and Roth deferrals combined. But the actual overall cap on a 401(k), employee and employer contributions combined, is $72,000 for 2026, or $80,000 if you’re 50 or older.
That gap between $24,500 and $72,000 doesn’t always get filled by your employer match alone. If your plan allows after-tax contributions, a specific feature that’s separate from your regular Roth 401(k) option, you may be able to contribute additional dollars beyond the normal deferral limit, up to that overall cap.
Here’s where it gets genuinely useful. If your plan also allows either in-plan Roth conversions or in-service withdrawals, you can move those after-tax contributions into a Roth account, either inside the plan or by rolling them into a Roth IRA, often with little to no additional tax owed, since you already paid tax on that money going in. Do this regularly enough and you’re getting tens of thousands of dollars a year into Roth space, with no income limit stopping you, far beyond what a standard backdoor Roth alone would ever get you.
The catch is that not every plan offers this. You need two specific features working together: after-tax contributions allowed, and a mechanism to convert or withdraw them. I’d say maybe a third of the plans I review actually have both. It’s worth five minutes on the phone with your HR or plan administrator to find out, because if your plan does support it, this is often the single biggest unused opportunity sitting in a client’s benefits package.
Roth Contributions in a Solo 401(k)
If you’re self-employed, this same idea applies to you directly, and there’s no income limit to work around in the first place.
A Solo 401(k) lets you make your employee deferral, up to $24,500 in 2026, as either pre-tax or Roth, your choice, regardless of how much you earn. There’s no MAGI phase-out on this the way there is with a Roth IRA. If you’re 50 or older, that Roth deferral room goes up to $32,500, or $35,750 if you’re 60 through 63.
Some Solo 401(k) providers also allow after-tax contributions on top of that, the same mega backdoor concept, giving a self-employed business owner access to significantly more Roth space than a W-2 employee could ever get through an employer plan alone. Not every provider supports this, so it’s worth confirming with whoever administers your plan, but for the right client, this stacks on top of everything else we’ve covered here.
Where This Actually Fits Into a Plan
None of this is really about chasing a tax trick. It’s about recognizing that “I make too much for a Roth” is true for exactly one narrow path, the direct contribution, and false for almost everything else. Between the standard backdoor Roth, the mega backdoor through your 401(k), and Roth options inside a Solo 401(k) if you’re self-employed, there’s usually more room than people assume, and the mistakes I see most often are either not knowing the room exists, or using it without the paperwork (Form 8606, specifically) to back it up.
If you’re not sure which of these actually applies to your situation, that’s a completely normal place to be. This is exactly the kind of thing worth a real conversation rather than a guess.
This article is for informational purposes only and does not constitute tax, legal, or investment advice. Contribution limits and income thresholds are current as of 2026 and subject to change. Backdoor Roth and mega backdoor Roth strategies involve specific tax rules, including the pro-rata rule, that vary by individual circumstances. Please consult your CPA or tax advisor before initiating a Roth conversion or after-tax 401(k) contribution strategy, as individual circumstances vary. Advisory services are offered through OneSeven. Services are provided under the name JTM Williams Capital Management, a DBA of OneSeven. OneSeven is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training.
Have questions about whether a backdoor or mega backdoor Roth makes sense for you? Reach out anytime at Matt@JTMWilliams.com or 703.782.3110, or schedule a complimentary 15-minute call.
