#Backdoor Roth IRA Conversion – Did I do it right?
####Understanding Backdoor Roth IRA Conversion Process
So, you’ve successfully completed a backdoor Roth IRA conversion but are unsure if you did it right. Let’s break down the steps you followed to clarify any confusion you may have.
#####Opening Traditional and Roth IRA at Fidelity
The first step you took was opening a Traditional IRA and a Roth IRA at Fidelity. This is essential for the backdoor Roth IRA conversion process.
#####Contributing to Traditional IRA
Next, you contributed $7,000 to the Traditional IRA. Since you are above the MAGI limit for direct Roth IRA contributions, this step is crucial for the backdoor conversion.
#####Converting Traditional IRA to Roth IRA
You then ‘converted’ the Traditional IRA to a Roth IRA on Fidelity’s website. This process involves moving the $7,000 from the Traditional IRA to the Roth IRA, which is essentially what the backdoor conversion is all about.
#####Keeping Traditional IRA Open
After completing the conversion, you now have $0 in the Traditional IRA and $7,000 in the Roth IRA. It’s important to note that keeping the Traditional IRA open, even with a $0 balance, is recommended. This allows you to repeat the conversion process in the future without any complications.
####Final Thoughts
Yes, you did the backdoor Roth IRA conversion correctly. The process may seem simple, but it is an effective strategy for high-income earners like yourself to still benefit from the tax advantages of a Roth IRA. If you have any further questions or concerns, consider consulting a financial advisor for personalized guidance. Don’t worry, you’re on the right track to maximizing your retirement savings! 🚀
Yes that’s correct.
“Conversion” is the IRS term for changing Traditional money to Roth money. The tax status of the money has converted. But yes in practice it feels more just like a transfer.
Yup.
You’re fine
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Read this for everything you need to know about Backdoor Roth and Form 8606:
* https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
Read this list of common screwups and solutions with respect to backdoor Roth. Beware of Screwup #5.
* https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/
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Yup. its as simple as that. Kinda shows how convoluted and inefficient alot of tax laws are…
do you have any T-IRA balance (across ALL IRA accounts. not just at Fidelity).
make sure to read up on the pro-rata rule.
Thanks a lot! So two quick follow-up questions:
1. So next year I just need to do the same thing, namely max out Traditional IRA and then move the money ASAP to the Roth IRA?
2. Can I invest my money on the Roth IRA immediately?
Yes you did it right. There’s not really any special “backdoor conversion”; in the eyes of the IRS you simply converted a chunk of money from your Traditional IRA into your Roth. When you do that you owe them tax on the money you move, but only on the dollars you claimed a deduction for (which retroactively made them untaxed). The “backdoor” takes advantage of the fact that you can make non-deducted contributions into your Traditional IRA (so they’re already taxed) and then move into the Roth tax-free.
You do have a couple more steps, but those will happen when you file your 2024 tax return next year. You’ll report $7000 of non-deductible contribution into your Traditional IRA. Then report the amount taken out of the Traditional IRA as part of the Roth conversion. As long as those match up, you have $7k more legally added to your Roth IRA for 2024 and owe no tax. Most tax prep software should be able to walk you through the necessary steps to get the right numbers to the right place on [Form 8606](https://www.irs.gov/forms-pubs/about-form-8606).
There is one important catch to be aware of. The amount of the conversion that is taxable depends on your non-deducted vs. deducted balance across **all** Traditional IRAs in your name, not just the one at Fidelity you did the backdoor through. Do you have any other Traditional IRA where you’d made deducted contributions in previous years? Maybe a “Rollover IRA” (same thing different name) you moved an old job’s 401k balance into? Or a SIMPLE or SEP IRA from a current/past job? If the answer to all those is “no” then you’re fine. If any of those is “yes” then you may have some annoying paperwork and tax cost in your future.
Yup, that’s it! Fidelity is going to send you some tax forms next spring that you’ll need to use when filling out your taxes.
If you use freetaxusa, this site’s instructions (for 2023 returns) worked great. You’ll need to poke around next year for updated instructions or for a different tax service.
https://thefinancebuff.com/how-to-backdoor-roth-freetaxusa.html
You did this right. Does your employer offer a 401k through Fidelity? If so, the back door Roth is super easy. There is a check box for “In-plan conversation” or something similar.