Backdoor Roth?

Slackster is 100% correct. Completely legal and legit.

One suggestion is to check in on this at your work. If you work for a large company in plan conversion might already be available to you.

My plan at work is administered by Fidelity and they do/did it on my behalf. Easy set up done online or over a phone call.

What’s the opinion on this if you’re in your peak earning years and in a high tax bracket? We looked at it and it made my palms sweaty when we started talking about the tax liability from the conversion.

Also, we have a few existing IRAs from previous 401k rollovers so I think it’s a moot point for us.

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What’s the opinion on this if you’re in your peak earning years and in a high tax bracket? We looked at it and it made my palms sweaty when we started talking about the tax liability from the conversion.

Also, we have a few existing IRAs from previous 401k rollovers so I think it’s a moot point for us.

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I dont know I would do it with previously existing traditional IRAs, the tax hit can be pretty big depending on what you would need to cover. Can you convert those to a 401k you have? We did this with a large traditional rollover IRA my wife had last year to be able to convert our traditional IRAs to ROTH by year's end after all our contributions to avoid pro-rata rule. We only paid a small amount of tax on the 2 current year conversions not having to take into account the rollover IRA since it went into my wife's existing 401k and they dont count pre-tax 401k (for whatever reason, I'll take it).

There's pretty much very little point in doing traditional IRAs and keeping that though if you're a high income earner (Assuming oyu can convert the traditional/rollover IRAs to a 401k), the tax deduction ends by like $246k married filing jointly and both of you work with retirement plans available at work. So there's no benefit to doing traditional after that point really as you get no tax deduction and then pay taxes when you withdraw later on the increased amount as well.

If you do a roth conversion each year, your tax liability would be very low pretty much each time and you'd be able to have all that money tax free in the future upon withdrawal. There's a 5 year rule of not being able to touch it, so if you're close to retirement might have to rethink it then or just convert that money in a different ROTH IRA account from your others to know it cant be touched until years xxx.

Last year was my wife and I's first year not being able to contribute directly to ROTH IRAs, so we just did 2 traditional IRAs, moved her rollover traditional IRA to her current 401k and then converted the 2 traditional IRAs by year's end to ROTH and only paid tax on the gains from within that year which obviously wasnt much. You could just do a lump sum of $7k and convert right away as well to avoid any taxes, but we DCA $583.33/mo into each one then jsut convert at years end personally.

Do it annually for many years.

A "backdoor Roth" sounds like something in the Urban Dictionary.

For whatever reason I cannot get a handle on the backdoor Roth conversation.

I'm 36 and have ~100k in my traditional IRA that has come from contributions over the last 15 years. I'm over the income limit to contribute to a Roth.

I have a 401k account that is separate with my company.

Should I convert some or all over to the Roth in my fidelity now? Is there a better time to do so?

Yes sorry, traditional IRA. Just mis-typed.

I have the 401k fully invested in S&P and liked using the traditional IRA for a dividend ETF and playing in individual stocks.

If I moved over to 401, I'd have nothing in the traditional and my annual traditional IRA contribution is maxed out. How would I then move or contribute anything to a backdoor Roth?

Appreciate the help, I've read a lot on this and no matter how anyone has put it, it doesn't click.

Should probably just talk to someone professional to get the golden retriever explanation I'm looking for.

Your annual traditional IRA contribution is what you would be converting to a backdoor Roth.
If you are over the income limit for Roth IRA then you're also over limit to deduct traditional IRA contributions. If so, your traditional IRA contribution is non deductible anyway so might as well backdoor convert it. You cant do that currently because the large traditional IRA balance would trigger taxes.

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So this is where clean the slate comment comes in with converting the balance to 401k? Probably just need to call my tax guy.

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Would call your tax guy regardless, since he’ll get a 1099-R showing you distributed money from an IRA and probably not know what to do with it.

That being said, based on the information you provided, you would first initiate a rollover into your 401k using the $100k in traditional IRA funds you mentioned. Once you’ve done that, you’ll no longer have any pre-tax funds in an IRA, so any backdoor conversion would be all aftertax money, and no taxes would be owed if it was done quickly - as in $7,000 goes into IRA and is then immediately converted to Roth the next day or something, before it has a chance to make/lose any money. That’s the cleanest way to do it.


If you do a backdoor without getting rid of the pretax funds, the IRS will say the 7,000 converted is attributable pro-rata to your pre and post tax IRA money, so only 7000/107,000 would be after tax and thus, tax free.