A backdoor Roth example: why a new account does not isolate IRA basis

By IRACircle · Updated 2026-10-21 · 2 min read

Separate a contribution from a conversion

A so-called backdoor Roth generally involves a nondeductible Traditional IRA contribution followed by a Roth conversion. They are separate transactions. Contribution eligibility and the annual contribution limit still matter, while a conversion can create taxable income. Calling the process a backdoor does not make the whole conversion tax-free.

The aggregation issue

Federal basis calculations generally consider Traditional, SEP, and SIMPLE IRAs together for this purpose. Opening a clean account at another custodian does not automatically separate nondeductible basis from existing pre-tax IRA money. Before converting, gather every relevant IRA balance and prior Forms 8606. A dashboard that shows only the account being converted does not contain the complete tax picture.

A simplified numerical example

Assume $93,000 of pre-tax IRA money and a $7,000 nondeductible contribution, followed by a $7,000 conversion. Assume no investment changes or other distributions, with $93,000 remaining at year end. The simplified denominator is $100,000: the remaining balance plus the conversion. The $7,000 basis represents 7% of that amount. On these assumptions, $490 of the conversion is nontaxable and $6,510 is taxable. The rest of the basis remains to track. This uses a deliberately chosen contribution below the 2026 maximum; it does not describe a separate legal cap.

Why timing and account types matter

The actual Form 8606 calculation includes relevant year-end balances and distributions. Later activity can change a result estimated earlier in the year. An employer plan accepting an eligible rollover can sometimes affect the IRA balance picture, but plan acceptance, basis restrictions, timing, and fees need examination. Do not move retirement funds solely to copy a simplified example.

Records to collect before proceeding

Assemble the intended contribution tax year, contribution confirmation, prior basis, all relevant IRA statements, expected December 31 balances, conversion confirmation, and any other distributions. Ask a preparer how the transaction will appear on Form 8606 and whether estimated tax or withholding is needed. Tax withheld from retirement money can have consequences of its own.

What to do when an estimate was wrong

A conversion generally cannot be undone by recharacterizing it under current rules. If you discover other IRA balances after converting, recompute the expected taxable amount and preserve the remaining basis. Review the tax payment implications promptly. The useful safeguard is complete records before conversion, not the number of accounts used to carry it out.

Sources and scope

Content revised October 21, 2026. Prepared with AI assistance; no independent professional review is claimed. Examples are hypothetical. General U.S. federal education; verify the source edition and seek qualified advice for your circumstances. Editorial policy and corrections.