We should all get a 2013 1099-R this month. Only you can decide how much money is significant to you. So your #2 makes sense now. I made an argument that suggested the latter, showing that the marginal benefits of doing the backdoor Roth paled in comparison to other smart money plays like taking advantage of travel rewards. Yup. I’m not sure how to do it but I’ll look into it. If the 401K accepts transfers and only accepts pre-tax money, then roll all the pre-tax money into it, and then convert what’s left. It just seems a little confusing. And no, you need to get rid of all traditional, SEP, and SIMPLE IRAs in order to avoid the pro-rata issue. ), The Backdoor Roth IRA Made Easy - Podcast #194, Understanding the Mega Backdoor Roth IRA - Podcast #127. They don’t count. If you did a backdoor Roth in 2012, you should have done a 2012 8606 9 months ago. But in 2018, I had the initial conversion plus my 2018 contribution and conversion (exactly as described in your video tutorial) and filled out my form accordingly. It says I got a distribution from my Traditional IRA of $5500 (which I did not, I just did the back door Roth) and that $5500 of it is taxable because of “early distribution, exception applies”. Wow, this is crazy timely. Which is $11,008. Yes. Vanguard won’t let you do it the same day, so I have to wait one day anyway. However, both these are employed based plans and makes it compulsory to withdraw the money in the calendar year unlike your HSA. I have never heard of $400 as some minimum income needed. I have been making backdoor IRA contributions the past few years. But how do I open a solo 401K? But not all 401(k) plans allow them. They aren’t the same thing. Backdoor Roth IRA: A method that taxpayers can use to place retirement savings in a Roth IRA , even if their income is higher than the maximum the IRS allows for regular Roth … If you understand the Backdoor Roth IRA, these little tweaks are no big deal. I appreciate this and hope I can utilize it in the future but really. Tax Return Access: Included with all TurboTax Deluxe, Premier, Self-Employed, TurboTax Live, TurboTax Live Full Service, or prior year PLUS benefits customers and access to up to the prior seven years of tax returns we have on file for you is available through 12/31/2022. Line 6 – This is the line that triggers the pro-rata issue. Thanks. Does the 457 count against for pro-rata rule? Don’t have enough info to say. Look it over, then hit submit and you'll go to the standard Vanguard confirmation screen which looks like this: On Day 3, you can finally choose the investment you want in the Roth IRA. d. Looks like in 2014, I contributed to Roth directly (not back door), without realizing the income limit restriction – since opening & contributing didn’t check for AGI. The pro-rata rule only matters for conversions. Am I wrong on these points? I’m also put off by $49.99 transaction fees. This is very timely for me. It’s not illegal to be pro-rated, it just kind of defeats the purpose. Some screenshots that may help: Click on “Contribute to IRA” and it will then take you to a screen that looks like almost like this (I forgot to take the screenshot before making the contribution so it won't let me contribute again for 2021): Normally on this page, you would have the option to choose 2021 as the year you want to contribute to (or 2020 too if you haven't done that yet, at least until April 15, 2021). Does it beat the Fidelity AmEx (2% on everything) plus PenFed (5% on gas)? Advisors have told me that they have had to help clients fix dozens of these that tax preparers have done improperly. Since I missed the 2019 conversion of the 12k traditional, I’m trying to figure out what tax I pay on the whole thing… However, people still manage to screw up on EACH of those six steps. Was “shortly after” also in December 2013? you can do it a little at a time. Given that Vanguard … This will be my first time doing any major investing as unfortunately I am only discovering this website and my options. No no, you’re thinking about all the right things. 2a) 5500 You said I should have 0 balance by Dec 31 of the year I make the roth conversion from a traditional IRA. Or do only traditional IRAs, Sep IRAs, and Simple IRAs count toward pro rata, and not Roth IRAs? There used to be concern that the IRS would have a problem with the backdoor Roth due to an IRS rule called The Step Transaction Doctrine. You’re choosing between taxable and tax-free. Yes. This is what I generally recommend for small IRAs where the tax bill on the conversion would not be too onerous. The end result is just like contributing after-tax money into a Roth IRA. However, an old SEP IRA from a different bank was not yet 0–in process now. If the pre-tax investment is 8%, then after 30 years, you have $672,902 in the Roth and, assuming a 23.8% LTCG/Dividend rate, $507,259, a difference of $165,643, or about $5521 per year for the hassle of 5 minutes of work, plus maybe screwing around for an hour or two doing the initial rollover of the SEP. I’m not sure how much you make per hour, but I don’t make that much, so I find the hassle quite worth it. That would mean each transfer in/rebalance could really rack up the commission charges. Would it be worth using some of the SEP contribution to contribute to a back door Roth for 2018? This must be what Schwab is doing because I convert the whole account. 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