Backdoor Roth IRA for physicians — the step-by-step process

You earn too much to contribute to a Roth IRA directly — the 2026 phase-out runs $153,000–$168,000 of MAGI for single filers and $242,000–$252,000 married filing jointly, and essentially every attending clears the top of those ranges. The backdoor Roth IRA is the lawful two-step workaround: contribute $7,500 to a traditional IRA as a nondeductible contribution, convert it to Roth, and report both on Form 8606. Done correctly, it costs you nothing in tax and adds $7,500 per year — $15,000 for a married couple — to the only account where growth and withdrawals are both tax-free.

The mechanics take about 20 minutes a year. The reason this article exists is the pro-rata rule, which most articles describe wrong and which converts a tax-free maneuver into a surprise tax bill for physicians carrying old SEP, SIMPLE, or rollover IRA balances. We will do the steps first, then the rule, correctly.

Before you start: the one-question pre-check

Do you have any money in any traditional IRA, SEP-IRA, SIMPLE IRA, or rollover IRA — at any institution, from any old job or moonlighting gig?

• No: proceed directly to the steps. Your conversion will be clean.
• Yes: stop and read the pro-rata section first. You need to clear those balances before December 31 of the year you convert, or accept a partially taxable conversion.

Note what is not on the list: your spouse's IRAs (the rule applies per person), your 401(k)/403(b)/457(b), inherited IRAs, and existing Roth IRAs. None of those count against you.

The steps

Step 1 — Open the accounts

You need a traditional IRA and a Roth IRA at the same brokerage (same firm makes the conversion a same-day click instead of a paper transfer). Any major low-cost brokerage works. This takes 10 minutes once, ever.

Step 2 — Contribute $7,500, nondeductible, to the traditional IRA

Transfer $7,500 from your checking account into the traditional IRA — not the Roth. There is no income limit on making a traditional IRA contribution; the income limit only governs whether you can deduct it, and you will not be deducting it. Leave the money in cash or a money market fund — do not invest it yet.

You can contribute for a tax year any time from January 1 of that year until the April tax deadline of the following year. The cleanest practice is contributing in January of the current year — it maximizes tax-free compounding time and keeps the contribution year and conversion year identical, which makes Form 8606 trivial.

Step 3 — Convert to Roth

After the contribution settles — typically one to a few business days — use the brokerage's "convert to Roth IRA" function and move the entire balance. If a few dollars of money-market interest accrued, convert that too; you will owe ordinary income tax on the dollar or two of earnings, and the alternative (leaving a residual balance) creates pro-rata pollution next year.

There is no income limit on Roth conversions, no waiting period required by the IRS, and no limit on conversion amounts. Convert promptly: the longer the money sits, the more taxable earnings accrue. Same-week conversion is the standard.

A note on the old fear that converting immediately after contributing looks like an abusive "step transaction": Congress addressed this directly in the 2017 tax act's committee reports, acknowledging the contribute-then-convert sequence as permissible, and the IRS has confirmed there is no required waiting period between contribution and conversion.

Step 4 — Invest the money

Once the dollars land in the Roth IRA, invest them per your asset allocation. The conversion step is administrative; this step is where the account actually earns its keep.

Step 5 — File Form 8606 with your tax return

Form 8606 is where the backdoor Roth becomes official. Part I reports the $7,500 nondeductible contribution and establishes your basis — the IRS's record that this money was already taxed. Part II reports the conversion and computes the taxable amount, which in a clean execution is $0 or a few dollars of earnings.

Two filing details that trip people:

• One Form 8606 per person. A couple doing two backdoor Roths files two forms.
• Tell your CPA explicitly. The brokerage will send a Form 1099-R showing a $7,500 (or so) distribution from your traditional IRA, and box 2a often says "taxable amount not determined." A preparer who does not know about the nondeductible contribution will tax the whole conversion. Hand over the 5498s and say the words "backdoor Roth, basis on Form 8606."

The pro-rata rule, stated correctly

Here is the version most articles get wrong: they say "if you have pre-tax IRA money, your conversion is taxable." The actual rule is more specific, and the specifics are what let you fix it.

When you convert, the IRS does not let you choose which dollars you converted. Instead, Form 8606 treats all of your traditional, SEP, and SIMPLE IRAs as one pool, and your conversion carries out basis and pre-tax money in proportion to the pool. The critical mechanics:

• The test date is December 31 of the conversion year — not the conversion date. Form 8606 computes the taxable fraction using your aggregate IRA balance at year end (plus amounts converted or distributed during the year). Convert in March with a $200,000 rollover IRA sitting there, roll that IRA into your 401(k) in November, and your December 31 balance is $0 — the conversion is clean. The reverse is the trap: convert cleanly in March, then roll an old 401(k) into an IRA in October, and you have retroactively poisoned the March conversion.
• The percentage, not the dollars, is what transfers. Your $7,500 of basis does not disappear in a polluted conversion — you just use only a sliver of it, and the rest carries forward on Form 8606 to future years.

The fix: roll pre-tax IRA money into a 401(k)

Employer plans are not part of the IRA pool. So the standard fix is to roll every pre-tax IRA dollar into a 401(k), 403(b), or solo 401(k) before December 31 of the conversion year:

1. Confirm your employer plan accepts roll-ins (most do; the SPD or a call to the recordkeeper settles it). A solo 401(k) works too if you have 1099 income — another reason it beats a SEP-IRA.
2. Roll only the pre-tax money in. Plans cannot accept IRA basis, so if an old IRA contains nondeductible contributions, roll the pre-tax portion to the plan and convert the remaining basis to Roth.
3. Get confirmation the rollover completed inside the calendar year. A rollover initiated December 28 that settles January 4 fails the test.

If you have no plan that accepts roll-ins and the IRA is small, the blunt alternative is converting the entire balance to Roth and paying the tax once. For a $20,000 SEP at a 35% rate, $7,000 of tax buys you a clean backdoor every year for the rest of your career — sometimes worth it, sometimes not. For a $300,000 rollover IRA, it almost never is; fix the plan-acceptance problem instead.

Common questions

Is the backdoor Roth worth it for just $7,500 a year?

$7,500 per year for 25 attending years at 7% is roughly $507,000 — about $1,015,000 for a couple doing two. All of it withdrawable tax-free in retirement, none of it subject to required minimum distributions during your lifetime. For 20 minutes a year, there is no better hourly rate in your financial life.

I forgot to file Form 8606 in a previous year. Now what?

File it late, standalone — Form 8606 can be filed by itself without amending the full return, and there is technically a $50 penalty the IRS rarely assesses. Reconstruct your contribution history from Form 5498s (your brokerage has them). Do this before your next conversion so your basis record is intact.

Can I still do this if I have a 401(k) from my employer?

Yes — employer plans are irrelevant to the pro-rata test. Only traditional, SEP, and SIMPLE IRA balances count. A physician with $800,000 in a 403(b) and $0 in IRAs does a perfectly clean backdoor Roth.

My spouse doesn't work. Can they do one too?

Yes. Spousal IRA rules let a non-working spouse contribute $7,500 based on your earned income, and the conversion works identically. That is $15,000 of household Roth space per year, $16,600 if both of you are 50 or older (the IRA catch-up is $1,100 for 2026).

Does the backdoor Roth affect my PSLF payments or my taxes this year?

No, in both directions. The nondeductible contribution does not lower your AGI (it was never deductible), so your income-driven repayment amount is untouched. And a clean conversion adds nothing to taxable income beyond the few dollars of interest earned between contribution and conversion. The whole maneuver is tax-neutral in the year you do it — the payoff is entirely in the decades of tax-free growth afterward.

What if my income unexpectedly drops below the Roth limit this year?

Nothing bad happens. The backdoor route is legal at any income — you simply could have contributed directly. If you are near the $242,000–$252,000 MFJ phase-out and unsure, just use the backdoor by default; it works at every income level and removes the guessing.

What to do next

1. Run the pre-check: list every traditional, SEP, SIMPLE, and rollover IRA you own, with balances. Your spouse does the same, separately.
2. If the list is empty: open the two accounts, contribute $7,500, convert within the week, invest.
3. If it is not: confirm your 401(k)/403(b)/solo 401(k) accepts roll-ins and start the rollover now — not in December.
4. Calendar two recurring items: the January contribution-and-convert, and a note to your tax preparer about Form 8606.
5. If you have moonlighting income in a SEP-IRA, stop contributing to it and open a solo 401(k) — same deduction, no pro-rata pollution.

If you are an Attending Financial member, the AI advisor can walk your specific December 31 balance test — including a carried-forward basis from prior Form 8606s — against your actual linked accounts before you convert.