Tax year 2026 · United States federal
The backdoor Roth, for freelancers
A backdoor Roth works cleanly only if you hold no traditional, SEP or SIMPLE IRA balance — those are aggregated, and a 401(k) is not. irs.gov
The mechanics everyone writes about — contribute to a traditional IRA, convert it — are the easy part and take an afternoon. Whether it costs you nothing or costs you thousands was decided years earlier, by which retirement plan you happened to open.
Why it exists
Direct Roth IRA contributions phase out above a modified AGI of $153,000 for a single filer and $242,000 filing jointly, and disappear entirely at $168,000 and $252,000. irs.gov
Conversions have no income limit. So a nondeductible contribution to a traditional IRA followed by a conversion reaches the same place by a different route, which is the whole of the idea.
The rule that decides whether it is free
When you convert, the taxable share is not computed against the account you converted. It is computed against every traditional, SEP and SIMPLE IRA you hold, treated as one. The Form 8606 instructions are explicit that “traditional IRA” includes traditional SEP IRAs and traditional SIMPLE IRAs for this purpose. irs.gov
Qualified employer plans — a solo 401(k) among them — are not in that aggregation.
What it does not mean
It is not a penalty and nothing was done wrong. Freelancer A has $100,000 in a retirement account, which is the point. The pro-rata rule prevents cherry-picking the after-tax dollars out of a mixed pool; it is not a charge for having saved.
The tax is not lost, it is accelerated. The basis stays basis and reduces future taxable distributions. What it costs is the ability to move money into a Roth cheaply this year.
One conversion does not clear it. The pool is measured on 31 December of the conversion year, not on the day you convert, so converting in January and hoping to fix the balance later does not work. That timing detail catches people who think they have found the loophole.
The fix, and its constraint
The standard remedy is to roll the IRA balance into an employer plan, because employer plans are outside the aggregation. For a solo operator that means rolling the SEP into a solo 401(k).
Which requires having a solo 401(k). If the reason you have a SEP is that you never opened one, the fix and the problem have the same cause — and opening one has its own deadline, which is not the filing deadline.
Not every solo 401(k) plan document accepts incoming rollovers, either. It is a question to ask the provider before opening the account rather than after.
What this changes about the plan choice
It moves the decision earlier. Comparing contribution limits is the usual way to choose between a SEP and a solo 401(k), and for anyone whose income will ever pass the Roth phase-out, this rule matters more than the limits do.
The awkward part is that it asks you to predict your income several years out, at the point where you have least information. The asymmetry is what resolves it: opening a solo 401(k) when a SEP would have been fine costs a Form 5500-EZ once assets reach $250,000. irs.gov Opening a SEP when you needed the 401(k) costs a conversion route that is expensive to reopen.
Where to stop and ask
Anything involving an existing IRA balance and a conversion is worth a preparer’s time before acting, not after. The reporting runs through Form 8606, the basis has to be tracked across years, and a mistake here is not corrected by amending one return — it propagates.