Compare
| Filing Status | Phase-out Begins (MAGI) | Phase-out Ends (No Direct Roth) |
|---|---|---|
| Single / Head of Household | $153,000 | $168,000 |
| Married Filing Jointly | $242,000 | $252,000 |
| Married Filing Separately | $0 | $10,000 |
Key point
MAGI (Modified Adjusted Gross Income) is not the same as your W-2 wages. It adds back certain deductions — student loan interest, traditional IRA deductions, foreign income exclusions — to your adjusted gross income. For most new graduates with straightforward income (salary + 401(k)), MAGI is very close to gross W-2 wages minus pre-tax 401(k) contributions. A large 401(k) contribution can pull your MAGI below the phaseout threshold — but only if you start close to it. Pre-tax deferrals are capped ($24,500 in 2026), so deferring can move MAGI down by at most that much: a single filer at $170,000 can defer their way under the $153,000 phaseout floor, while one at $185,000 cannot — and that is exactly the situation where the backdoor below takes over.
Key point
The Backdoor Roth is a two-step process: (1) Make a non-deductible contribution to a Traditional IRA (up to $7,500 in 2026 — the same dollar limit as Roth). (2) Convert that Traditional IRA balance to your Roth IRA. Step 2 is a Roth conversion, not a new contribution — no income limit applies. Congress acknowledged the strategy's legitimacy in the 2017 tax-reform conference-report footnotes (there is no dedicated IRS blessing notice for the IRA backdoor; IRS Notice 2014-54 — often miscited here — governs the MEGA-backdoor's after-tax 401(k) rollover allocation instead). You report the non-deductible contribution and the conversion on Form 8606.
Note
If you have any pre-tax money in ANY Traditional IRA account (including rollover IRAs from old employers), the IRS treats all your IRA money as a single pool when you convert. The taxable fraction of the conversion equals pre-tax IRA dollars divided by total IRA dollars. Example: you have $70,000 in a rollover IRA (pre-tax) and add $7,500 non-deductible, then convert $7,500. The taxable fraction is 70,000 / 77,500 = 90.3% — so $6,774 of your $7,500 conversion is taxable income, completely defeating the strategy. The aggregation pool spans ALL your traditional, SEP, and SIMPLE IRAs combined (Roth IRAs and 401(k)s are excluded), and it is measured on December 31 of the conversion year — not the conversion date. The fix: roll your pre-tax IRA money into your current employer's 401(k) before December 31 of the year you convert, so the year-end pool is zero. This is educational, not tax advice: the pro-rata math depends on your full IRA picture across every account, so consult a tax advisor before executing a backdoor (or mega-backdoor) conversion — a misstep creates a taxable event that is hard to unwind.
Formula
Taxable Conversion % = Pre-Tax IRA Balance / (Pre-Tax IRA Balance + Non-Deductible Balance)
Key insight
Compare
| Strategy | Annual Roth Space Added | Requirement | Key Risk |
|---|---|---|---|
| Direct Roth IRA | $7,500 (2026) | MAGI below phaseout | None — simplest path |
| Backdoor Roth | $7,500 (2026) | No pre-tax IRA balances (or roll them into 401k first) | Pro-rata rule if pre-tax IRA exists |
| Mega-Backdoor Roth | Up to ~$47,500 (2026, total 415(c) limit $72,000 minus $24,500 employee deferral) | Plan must allow after-tax contributions + in-service conversion | Not available at all employers; plan rules govern |
Key point
Form 8606 is mandatory whenever you make a non-deductible IRA contribution or do a Roth conversion. It tracks your basis (after-tax dollars) in the IRA system so you are not taxed twice. File it even in years where you have no conversion. Failure to file Form 8606 means the IRS assumes all IRA distributions are taxable — you will pay double tax on money you already paid tax on.
Note
Step 1: Is your MAGI below the Roth phaseout? → Contribute directly. Done. Step 2: Is your MAGI above the phaseout? → Check: Do you have any pre-tax IRA balances (Traditional, SEP, SIMPLE IRA)? If yes: roll them into your current employer 401(k) first. If no (or after roll): proceed with the backdoor (non-deductible TIRA → convert). Step 3: Does your 401(k) allow after-tax contributions + in-service conversion? → Layer on the mega-backdoor for up to $40,000+ of additional Roth space.
Key point
One important caveat: the Roth conversion in the backdoor is irrevocable. Once money is in the Roth, you cannot undo the conversion (the IRS eliminated recharacterizations of conversions in 2018 via the Tax Cuts and Jobs Act). Make sure you have the cash to cover any taxes due on the taxable portion before converting.
Try it
Check-in
Sit with the ideas.
An investor earns $195,000 MAGI (single filer), has no existing IRA balances, and wants to contribute to a Roth IRA for this tax year. Which sequence is correct?