That’s a 50% return in a couple months. I don’t know that doing a Roth IRA the very first time is as straight forward as outlined in your three steps. As an heir I would much rather inherit Roth funds for that reason. Make a Non-Deductible Contribution to a Traditional IRA. You had a return of excess traditional IRA contributions (see Return of Excess Traditional IRA Contributions, earlier). While you lay out scenario’s where capital gains taxes can be avoided, I would submit that it is much more likely than not that capital gains will be taxed for someone who has to use the backdoor for Roth contributions in the first place (because their income exceeeds the cutoff). Based upon my portfolio and using current tax rules, I fully expect this will happen to me when I turn 70. The hassle is so tiny most of the time (MAYBE one IRA rollover, plus a contribution and conversion each year) I think it’s worth it for most. I am not eligible to contribute directly due to my AGI. Nobody. My question is: is there any way to set up an auto-rollover? You need earned income to do the IRA contribution step. But in the case where you’re already maxing out other tax-advantaged space, the $5,500 we’re talking about should represent a small portion of your annual investments — under 10% for most and less than 5% for many. Don't worry, if you do it right all you have to do next year is copy the previous year's form. you’ve already agreed to pay that money, it’s now a sunk cost/water under the bridge. I like having Roth dollars as part of my portfolio and it’s one reason that my money may be worth more than yours. Good point, I guess I learned this lesson just in time. I would have either converted the whole $100K and paid the tax or just not done the Backdoor Roth IRAs. Maybe it makes their budgeting easier, I don't know. Look at the 8606 in Forms mode before submitting. I wanted to do that here, but at 3,300 words, it’s plenty long. I may need to contact Fidelity to correct. The only thing we could see was that TurboTax put an asterisk on the 8606 lines 13, 15 and 18 that had a small note: *From Taxable IRA Distribution Wkst (per IRS Pub. I asked the Recon Chase associated about the rules and she acted like there were no rules, just case by case considerations. I’m not sure how I’d fill out 8606 any differently for the IRS. -be very weary of the qualifications of your tax preparer: could be giving the wrong advice. admin 4 months ago No comment. The fact that you converted it is relatively irrelevant. I disagree with him. What's not to like? Here's a third one that isn't technically an error. Reply. Enter $0. I did this for a while. Backdoor Roth IRA. 3) giving it to heirs as a stretch Roth IRA. The Chase Freedom Flex offers 5% cash back on rotating categories, 5% back on travel booked via Chase, 3% back at restaurants & drugstores. Obviously, this particular benefit of Roth dollars will vary from non-existent to substantial, depending on your individual circumstances, drawdown strategy, and portfolio construction. Do it at eTrade, Fidelity, or Schwab. I also agree that the first time can be a bit painstaking, especially on step #5: Making it Zero. I finally did and last year was the first year I did a backdoor roth (to demonstrate how long I had put it off, I had over $65k basis that was converted). I’m worried if I put it off I may have lifestyle creep. Give away your money with warm hands rather than cold. Based on my experience I would wait at least 4 months in between cards. It is worth having a solo 401(k), however if you have a significant side gig. Is it Worth the Trouble? I know that won’t work for rolling into. Finally, assets in a Roth IRA are better protected from creditors than assets in a taxable account, so there is that asset protection advantage. I was thinking of moving the employers contribution, (the remainder 37k going into trad solo 401k) , to a traditional ira and then converting this to Roth IRA Combined with using backdoor personal ira to Roth, leaving Roth IRA flush and the traditional ira zero every year. POF, I really believe you need to amend your article to include such data because it is a big deal. They want to do the Backdoor Roth. The White Coat Investor covers some of the advantages in this article. Or if you’re buying more than 10k at once just purchase FSTVX to begin with and get the same index tracking at the lower ratio! That only happens if incremental “ordinary income” causes more of your capital gains to be taxed. Let’s go with 0.5% as a typical annual cost of holding funds in a taxable account as opposed to a Roth account where no taxes would be due on the dividends. Not Doing The Conversion During the Calendar Year. Now that we understand that the annual benefit of the backdoor Roth is measured in dozens of dollars, we don’t have to feel bad about not doing it if it’s not convenient given our situation. I would scan the receipt, save it in the appropriate folder on my hard drive, and enter the details into a spreadsheet. My accountant didn’t include an 8606 even though I expressly told them to. Make it zero. Appreciate the in depth article on the pros and cons of the Backdoor Roth. Good point about the tax rates going up substantially on a widow or widower. A little hustle goes a long way to fueling a fatFIRE. If you’re married and doing this with $12,000 per year, the savings could eventually reach a tidy sum — but at an initial rate of $40 to $100 per year. If the amount is more than 50 cents, then try to include it in the initial conversion or do a second conversion if the IRA custodian will allow it. Out on less income than a few bucks more or less when you skrewed up # 4 you list ways... 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