Backdoor Roth IRA on Charles Schwab: What’s Different
The Schwab-specific steps
| Step | What happens on Schwab |
|---|---|
| 1. Open/fund a Traditional IRA | Contribution from a linked Schwab account can settle same-day |
| 2. Make a nondeductible contribution | Contributed as after-tax money; no special Schwab flag distinguishes it – you track this yourself for Form 8606 |
| 3. Convert to Roth | Use Schwab’s “Convert to Roth IRA” request; typically processes within 1-3 business days |
| 4. Report it at tax time | You receive a 1099-R (for the conversion) and a 5498 (for the contribution) – possibly in different tax years |
Schwab-specific timing and form issuance per Schwab’s own published guidance on the backdoor Roth process – see Sources below.
Why converting quickly actually matters
Any investment growth that happens between your nondeductible contribution and your Roth conversion becomes taxable income at conversion – it’s the one part of an otherwise tax-free backdoor Roth that can create a real, if usually small, tax bill. Because a Schwab-linked contribution can settle the same day, and Schwab’s own conversion typically completes within 1-3 business days, the realistic window for the money to sit un-invested (or minimally invested) before conversion is short. Converting promptly, and keeping the contribution in cash or a money market fund rather than immediately buying volatile investments, keeps that taxable sliver close to zero.
Two separate tax forms, and why the timing confuses people
Schwab issues a Form 5498 reporting your IRA contribution, tied to the year the contribution is for (which can be different from the calendar year you actually made it, if you contribute in the following year before the tax deadline). Separately, Schwab issues a Form 1099-R reporting the conversion, tied to the calendar year the conversion actually happened. If you contribute in, say, January for the prior tax year and convert immediately, these two forms can report different tax years for what feels like one transaction – which is a common source of confusion at filing time, not an error.
Form 8606 is on you, not Schwab
Schwab does not file IRS Form 8606 on your behalf. This form is what actually tells the IRS your contribution was nondeductible (after-tax) rather than pre-tax – without it, the IRS has no record that you already paid tax on that money, and the conversion could be treated as fully taxable if you’re ever audited or if you (or your tax software) forget to file it. This is true regardless of custodian, but worth stating plainly since it’s easy to assume a large brokerage handles every piece of the paperwork automatically.
Red flag to watch for
Don’t assume that because your only IRA at Schwab is the new one you just funded and converted, the pro-rata rule doesn’t apply to you. If you hold any other pre-tax Traditional, SEP, or SIMPLE IRA balance – at Schwab or anywhere else – the pro-rata rule aggregates across every IRA you own, not just the account you used for the backdoor contribution. Check your full IRA picture across all custodians before assuming a clean, fully tax-free conversion.
Not sure if the pro-rata rule affects you? See our Pro-Rata Rule guide →
Frequently Asked Questions
Is the backdoor Roth process different on Charles Schwab than other brokerages?
The underlying tax mechanics are identical everywhere. What differs is Schwab’s practical timing (same-day funding, 1-3 business day conversion) and the specific tax forms it issues (1099-R for the conversion, 5498 for the contribution).
Why does converting quickly matter on Schwab?
Any earnings between the contribution and the conversion become taxable at conversion. A fast Schwab timeline keeps that window – and the resulting taxable amount – small.
Does Schwab file Form 8606 for me?
No. Form 8606 is your responsibility every year you have nondeductible IRA basis, regardless of which custodian you use.
If I only have one IRA at Schwab, does the pro-rata rule still apply?
Yes, if you hold any other pre-tax IRA balance anywhere else. The pro-rata rule aggregates across every IRA you own, not just the account at one brokerage.
- Charles Schwab, “What is a Backdoor Roth IRA? Income Limits, Taxes, & Rules” – schwab.com/learn/story/backdoor-roth-is-it-right-you – Schwab’s own description of contribution/conversion timing and form issuance.
- Internal Revenue Service, Instructions for Form 8606 – irs.gov/forms-pubs/about-form-8606 – nondeductible contribution reporting requirements.
Are you able to walk through the tax forms that need filled out for these transactions? I believe it's form 8606.
Thank you for this video! I was a little confused about the process and glad to have stumble across your helpful video. Do you know about the 8606 tax form? Apparently you have to fill that form out during tax season if you make a backdoor ROTH contribution? Information about it is unclear online. Thank you in advance!
Do you do the same method every year?
Easy peasy! Thanks for posting and walking us through this
I opened up a fresh new Contributory IRA to do this Back Door conversion, but the account is “limited”. Did you encounter that, and if it’s only temporarily “limited”, how long does that new account stays “limited”?
It's strange it does not say Roth year of 2025 or 2026. I'm doing it for 2025 in March 2026. I hope I can do it again for 2026.
First of all, thanks for posting this. Much appreciated! I thought I was going crazy looking for the old workflow.
Insane that they changed this without notifying customers or updating their documentation/videos. I contacted support and they still gave me zero useful answers on what happened to the old workflow, or what the replacement was supposed to be.
Amazing video! Thank you for the clear step by step instructions
Great video, their platform looks pretty straight forward for this.
Thanks for posting this 2026, detailed update guide. You should keep doing this every year 🙂
Thank you for posting the update. I freaked out a bit when I saw things had changed.
Quick question. I know you transfer your money to Schwab’s checking account, then traditional Ira, to avoid accruing interest by waiting for the money to settle in the traditional Ira. But doesn’t the checking account also accrue interest as well?
So I just did the conversion. But upon putting money in my traditional ira, I selected 2025 year, after I convert it, it didnt reflect that I did a conversion for the year 2025 but the money I there. Am I still able to convert for the 2026 year? Im kinda confused
Thank you!! Also what is your keyboard? Those switches sound amazing
thank you for this! going to set this up soon!
I did exactly the same process, with the only difference being that I don’t have a Schwab investment checking account.
Because of that, I transferred the money from my bank account into a Traditional IRA, and then from the Traditional IRA into a Roth IRA (backdoor Roth).
I selected 0% tax withholding, but when I called Schwab to confirm, they told me that the conversion is taxable, which confused me.
Will I actually be taxed? If so, will the tax be based on my income level, or only on the small amount of earnings (“pennies”) generated in the Traditional IRA before the conversion?
Do you know if you can contribute for the prior year up until tax day, similar to how you can for an HSA? I didn’t see the option to choose which tax year in your walk through. Thanks!
Thanks for the updated version, true lifesaver!
Cant you just deposit money straight from your checking account to your traditional IRA?
is "INVEST CHECKING" the Traditional IRA? or is it the traditional IRA "Contributory"? I'm confused on that
Thank you! I was wondering if I made the wrong account lmao. Since I wasn't getting the prompt for Roth conversion.
Thank you for this video. I used your videos to assist me, and I really appreciate your effort.
thank you
Thanks so much for the updated video! 🙂
Thank you!
I just did this process. when I went to the balances page of my Roth IRA account, it says $0 for the contribution year and the previous year. is the amount I transferred not linked to any particular year?
Hi, thank you for this! Did you wait a day after you transferred money to your IRA account to transfer to the Roth IRA account, or did it all in one day?
Thanks for the information. I have a question on the residual $0.02 remains on the contributory IRA from last year. For this year conversion how to handle this amount for Roth conversion.?
Thanks for updating! Those new transfer screen options confused me 🙂
Thanks for providing an updated 2026 version! Exactly what I was looking for since the webpage looks different now.
I used to DCA my Roth backdoor conversions once each month, but then I read that history has shown that returns end up being better if one invests the entire Roth lump sum at the start of the year. I have my backdoor through Vanguard and they make it super simple to perform backdoor conversions.
Thank you!! Quick question, I too set up a zero balance traditional IRA that I'll use for nothing but to do backdoor Roths. Suppose in the time your $7500 sat in the traditional long enough to earn however minimal interest at the end of the month (e.g. $0.05). It can't go into the Roth since you maxed out your $7500 for the year. But I don't like the idea of ANY amount of money sitting in the traditional because of the pro rata rule (for future backdoor roths). Since you put after-tax $7500 into the traditional, can the $0.05 move in the other direction to your schwab checkingm, restoring the traditional ira back to a zero balance?
I suppose I could backdoor $7499, and if any interest is earned on that, backdoor that amount to stay within my $7500 limit.
thank you