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Turning on Backdoor Roth for a surplus rule that funds a Roth IRA models a nondeductible traditional IRA contribution converted to the Roth IRA straight away. The Roth income limit no longer applies; the annual IRA limit and the earned-income requirement still do.
If the owner holds pre-tax money in their own traditional IRAs, part of each contribution is taxable under the pro-rata rule. CoastMath adds that part to the year’s ordinary income and starts a five-year clock on it, as it would for any conversion.
The rule is funded from the year’s surplus, after spending, in its place in the rule list, like any other savings rule (see Direct surplus into accounts). Each year it contributes what the rule asks for, limited by the surplus left, the rule’s Annual maximum and the owner’s remaining IRA limit. The contribution goes straight to the Roth IRA; no balance passes through a traditional IRA in the plan.
The option applies only to a Roth IRA destination. Without it, a Roth IRA rule is limited by the income phase-out, as described in Contributions, employer match and limits.
- IRA contribution limit
- $7,500
- Shared by the owner’s traditional and Roth IRA contributions
- Additional amount at 50 or older
- $1,100
- Roth phase-out, single or head of household
- $153,000–$168,000
- Bypassed by the backdoor
- Roth phase-out, married filing jointly
- $242,000–$252,000
- Bypassed by the backdoor
Contributions can’t exceed the owner’s earned income for the year; a couple filing jointly can use their combined earned income. CoastMath raises the limits with inflation in later years. Other contributions to the same owner’s IRAs earlier in the list use up the limit first.
Taxable share=Contribution×Pre-tax traditional IRA balancePre-tax traditional IRA balance + contribution
The pre-tax balance is the total in the owner’s own traditional IRAs when the contribution is made. A partner’s IRAs, inherited IRAs and 401(k)s don’t count. With no pre-tax IRA money the whole contribution converts tax-free.
| Contribution | $7,500 | |
|---|---|---|
| × | Pre-tax share: $67,500 ÷ $75,000 | 90% |
| = | Taxable share, added to ordinary income | $6,750 |
| × | Marginal federal rate | 32% |
| = | Added federal income tax | $2,160 |
Single filer with a $250,000 salary in 2026; the tax is the difference between runs with and without the rollover IRA.
The taxable share is included in the year’s income and tax. It’s taxed like conversion income, never charged the early-withdrawal penalty, and settled with the rest of the year’s tax. The projection also shows a warning whenever a backdoor contribution was partly taxable.
Each backdoor contribution is recorded in the Roth IRA as a conversion for its year, split into the taxable share and the tax-free share. Withdrawing the taxable share within five years and before 59½ costs the 10% additional tax; the tax-free share can come out without it. Roth IRA money comes out regular contributions first, then conversions oldest first, then earnings. See Roth conversions and Early withdrawal penalties and Roth ordering.
The rule models after-tax 401(k) contributions converted in the plan to the Roth 401(k) at once. They come out of taxed pay: no deduction and no change to payroll taxes. With no earnings between contribution and conversion, nothing is taxed; the dollars are recorded in the Roth 401(k) as a tax-free in-plan rollover. Each year it contributes the remaining room, limited by the rule’s Annual maximum and the pay earlier rules left.
Room=Employee plus employer limit−Employee deferrals, without catch-up−Employer contributions
The limit is $72,000 in 2026, never more than the owner’s pay, and counts all of the owner’s 401(k)s from W-2 jobs. A solo 401(k) funded from self-employment has its own limit. Rules run in list order, so put this rule below the deferral and employer rules it should leave room for; a rule below it finds the room already used. See Contributions, employer match and limits.