🌟 2024 UPDATE: The Roth Contribution limit is $7,000 ($8,000 for those 50 years and older) It has also come to my attention that switching your core position to FDIC from SPAXX is not necessary when doing this backdoor Roth IRA strategy. However, some of you (like myself) were not able to do the final Roth conversion step and have found that switching the core position of the funds in the Traditional IRA from SPAXX to FDIC solved the issue. I don't know why this solution worked, but in any case, I presented it in this video to help any one else who encountered the same problem as me. In any case, happy retirement planning and let's make it a great 2024!
Does one have to wait between Cash Management/brokerage account to traditional and traditional to roth transfers? I talked to fidelity and they said you can do it immediately within seconds. Any implications of doing immediately?
@@sohilshrestha9506 I personally wait for funds to clear before doing a Roth conversion. I don't think there are any implications to doing it immediately, but it just gives me more peace of mind knowing that there's a record of my funds cleared in my Traditional IRA before it gets Roth converted. As for CMA/bank to Traditional IRA, I transfer it as soon as I'm ready.
Hey, thanks for the great video. If you do not have the money saved up at the start of the year, can you do this on a monthly basis as you get paid? Transfer the monthly breakdown of the new $7k limit ($583) into the traditional, and then immediately roll over every month, in order to put that money to work in the Roth IRA? Also can you still withdraw any contributions you make (not gains) to the roth IRA if you do it this way?
@@Ryanduncan27 Thanks! Yes, you can certainly do so. I would only say that Fidelity accrues interest at the end of the month so in order to keep the Trad IRA at $0 by Dec 31st, would recommend front loading contributions towards the end of the year so you can Roth convert any interest accrued before December. As for contributions, I'm not entirely sure. I would ask a financial professional to make sure if this is ok.
I made this video in 2022 and a lot of people found it helpful, so I wanted to remake it even better 1 year later! Hope you enjoy and if you have any questions, leave a comment down below! 👇
Excellent video however, I am also a Fidelity user and I saw a flaw. Do you have a fidelity cash management account which means when you deposit money into it it goes into a bank like interest-bearing account whereas I have the exact product except for mine is the brokerage account so when I deposit money it goes into the sweep account, which is SPAXX which earns a lot more interest Other than that, this was hands-down, one of the best videos on the subject. I can’t wait for your new update come out.
@@missouri6014 Thanks! Yeah, using SPAXX is actually going to earn you more interest for sure, but really the CMA is meant only to be a temporary holding account for the funds until they get ultimately get transferred to the Trad IRA, then Roth IRA, and then gets invested immediately. So you're definitely right about that, but since the money is in there for such a short time, I thought it was ok. Appreciate the feedback and glad you found the video to be helpful!
@john-d1775 No prob! There is no maximum limit to a Roth conversion, but (as far as I know) you can only Roth convert up to the annual contribution limit without triggering a taxable event. If you Roth convert a larger amount, the remainder will be taxed as ordinary income.
bro is sitting there talking about making too much money in income each year to directly contribute to a roth ira while wearing a figs jacket on what a GOAT! thanks for explaining it so clearly man keep up the good work
This was the easiest way anyone has explained this process that I’ve seen. Thank you. I was nervous about this process but now it doesn’t seem so scary
This is exactly what I was looking for. The amount of detail you provided was perfect. I was thinking how to I change my core position and then you showed how! Fantastic content.
Thanks Donovan! I'm glad you found the content helpful, and I know that it can be somewhat confusing to change your core position so I'm happy that this was helpful as well!
Very helpful and thorough details! Exactly I was looking for. Currently, my employer offer 401K through fidelity and I had opened up ROTH IRA with fidelity in the past as I was eligible to contribute directly to the Roth IRA. In current situation, It seems I will now have to back door ROTH. Now I will just have to open transitional IRA SINCE i have already Roth with fidelity. Thank you again for making it a lot easier with simple explanation.
Same! This made the process so understandable! Thank you!!! Do you know if if in a back door IRA conversion if each conversion/contribution has to be in there for 5 years before tax free?
@@la54578 No problem! I'm not entirely sure about the 5-year rule. I'm pretty sure it applies to this as well because you're doing a Roth conversion of your contribution so it technically counts as a conversion. But if you wanted a true answer, I would speak to a financial professional.
Great video! I made the mistake of contributing directly to the traditional IRA and then I had to wait to move it to the Roth IRA and the cash accumulated $4 of interest which then showed up on a tax form and I had to report it as income which seemed stupid 🤦♂️. Next year I'll definitely make sure to contribute to my CMA first and let it settle before transferring.
Yeah, it’s super annoying when it does that. They key is to do the Roth conversion the moment the funds hit your Traditional IRA. I do this the same day and still got $.60 of interest at the time, but the IRS rounds down so it shows up on my Form 8606 as negligible hah!
@@TheCreditFrog Thank you! There is $.85 of interest in my traditional IRA account left over after my conversion. Would it be an issue if I just transferred that .85 to my CMA or other bank account? Or is it mandatory that the $.85 be converted also? Thanks again. I'm a subscriber!
@aau_626 Yeah, I wouldn’t withdraw any interest from your Traditional IRA if you could help it. Usually not a great idea. I’m not a financial professional, so I’m not super familiar with the specific consequences, but I would just Roth convert those funds to keep it simple. Thanks, I really appreciate the support!
Thanks for the video, Stan. I successfully did my first backdoor Roth IRA for 2023 using your video last year. The only difference I got from your video was that while waiting a few days for the $6,500 funds to clear in my traditional IRA before transferring them to a Roth IRA, I earned around 6 dollars in interest. Now that I want to contribute to the Backdoor Roth IRA for 2024 ($7000), I am unsure about what to do with the remaining 6 dollars in my traditional IRA.
That's awesome! Yeah, the backdoor Roth is just something you do every year, but once you do it once, it gets pretty routine! As for the $6 in interest, you can definitely Roth convert those funds with no problem. You'll have to pay ordinary income tax on that $6, but that shouldn't be too bad. In the future, you can Roth convert the entire amount + interest in the same year so that your Trad IRA has $0 on Dec 31st. That will make filling out Form 8606 much simpler when you file your taxes!
Quick question - so once you transfer all the funds to the Roth account, you just the traditional Ira open with $0 bal until the following year when you go through this whole process again? I just want to confirm. This video is very helpful. Thank you.
This was a super helpful video. I've always been curious as to how to actually perform one of these. Since I am still eligible to contribute to a Roth IRA without needing to use the backdoor method, I'm set for now, but this will be super good to look back on in the future. Now I just gotta get my income up!
Glad you found the video helpful Spencer! Yes, it's a retirement strategy that is pretty simple to understand and can be very helpful to get some more money into that Roth once you're over the income limit! You'll be over this limit sooner than you think, and when that time comes, you'll know exactly how to handle this situation 👍. Also Green looks great on you 🤩!
Thank you for this video. I've been feeling quite intimidated about this process. I've read a lot of blogs about this process and they make it seem super complicated. Thank you for this video because you showed that it's all very simple and straightforward. Definitely calmed my nerves for sure. Thank you!
Thanks for the great video. @9:30 of your video, you to avoid the tax, "3. Have no other funds in other IRAs (excluding Roth/Inherited)". I don't understand this. Can you explain it? I have a Fidelity "Rollover IRA" account. Will it cause tax issues? Thanks in advance!
You’re welcome! Yes Rollover IRAs will cause tax issues. That IRA needs to have a $0 balance by Dec 31st for the backdoor Roth to work. Pleas consult with a financial professional to understand your options, which may include a Roth conversion ladder!
This is an awesome video here Stan! And even though I'm not currently in the high-income bracket, it'll surely be super helpful for all those high-income earners that make more than $138K and still want to contribute to a Roth.
Thanks Matt! I know you will get there soon! Although since you’re getting married this year, the numbers may change in your favor. If anything, this video will be here when you need it!
Thanks Eric! Yeah, I hope that this video will help anyone that is trying to perform a backdoor Roth with Fidelity. It was super confusing the first time I tried to do it so hopefully others can learn from this video!
This is really clear and lots of nuances are explained that I cannot find in other videos. Thank you bro! One thing I want to double-check is that the reason you transferred your money to CMA at the end of Dec, 2022 and waited until Jan. 1st, 2023 to do the Roth Conversion is because you want to keep your Traditional IRA 0 balance to avoid pro-rata-rule for the 2022 Roth Conversion you did maybe on Jan. 2022, is that correct? So keeping 0 balance by Dec. 31, 2022 is for the tax year 2022, not for tax year 2023? And the Roth conversion you did in this video is for the 2023 tax year, is that correct? Thanks!
You're welcome! So in this video, I actually contribute in Jan 2023 for tax year 2023. I personally contribute the funds at the beginning of the year, but it's still very important to keep the Traditional IRA at a $0 balance to avoid the pro rata rule like you mentioned. So yes, you could extrapolate this example for Jan 2022 for the Roth conversion for tax year 2022. It's always better to do the Roth conversion in the same tax year as the contribution.
What a great video, Stan! Thank you so much. Quick question: I have both a SEP and traditional IRA. From my understanding, the SEP limit is based on your self-employed income, however I keep reading that the limit for all IRA contributions is $6,500 for 2023. Can you explain that better or if there is something I may be missing? Additionally to avoid pro rata, I would still need to make sure that both the SEP and traditional IRA balances are zero by the end of the year that I completed the conversion to Roth correct?
Hi Selby! Of course, glad you enjoyed the video. The SEP limit ($61k in 2022) is separate from the Roth IRA limit. And yes, to avoid pro rata, both Traditional IRA and SEP IRA must be zero by 12/31!
Immediate new subscriber just from this one video, thank you so much for being so thorough and guiding us through step-by-step style by showing us, instead of just talking about it.
Thanks for making this video. This is really helping out. When I called Fidelity, they said doing a backdoor Roth IRA would be easy. But after watching your TH-cam video and reading most of the comments with people's questions, I found out about my mistakes. I had a rollover IRA from previous jobs and tried to do a backdoor IRA while leaving the rollover IRA. But as the comments said, I should transfer the money. So I transferred the rollover IRA to my 403(b) to avoid tax. I wouldn't have thought about this until I read most of the comments with your answers. That really helped me a lot. Anyway, thanks so much for making this video. I have a question about the time frame for a backdoor IRA. You said that it takes a few days to be eligible to transfer from a traditional IRA to a Roth IRA, but after a week, it still didn't work. So I called Fidelity, and they said I have to wait for 16 days after the money settles in my traditional IRA. Is it true that it takes so long, like three weeks, to transfer money from a traditional IRA to a Roth IRA? That means I might have some interest during that time, right?
Thanks! Yeah it depends on the bank how long it will take to clear. You will certainly accrue interest during this time, but you can Roth convert that amount too and just pay ordinary income tax on that interest.
Hello Stan, thanks for sharing this video. As other commenters of said, this was explained claring and using a common application. It is clear and will help me to set up mine. Subscribed to support "The credit frog"
You're welcome! Just to be clear, although you can do this at the end of the year, I recommend doing the Roth conversion at the beginning of the year. But it's nice to have all the contribution money saved up at the end of year so when the new year rolls around, you're ready to max out that IRA contribution!
ThankQ . I moved 6500 to traditional IRA in November 2023 and planning to do backdoor roth now(feb 2024). Your ancillary #1 says to do it in same year.. is there any additional steps i need to do for my scenario?
Yes, you'll have to fill out Form 8606 a little differently because of this. I would follow the provided instructions with the form, but if it's confusing, definitely would recommend consulting with a financial professional to make sure it's filled out right!
Just did this today. I did put it in a previous rollover ira (traditional) that was funded. Is this against the pro rata rule? I planned to send the whole amount to my roth and complete the 8606 form.
@@TheCreditFrogthank you for responding, say it has over 7000 in it now will I be able to backdoor roth only 7000 or the whole amount? And paying tax on the previous traditional contributions?
@SavannahHibner when you do the Roth conversion, you’ll have to convert the entire amount. You’ll pay ordinary income tax on any capital gains from the previous $7k in that account.
thanks for the video!, just as an FYI, you don't need to convert to your Core position on Traditional IRA from SPAXX to FDIC-Insured Deposit Sweep Program, it is possible Traditional IRA with core in SPAXX direct to ROTH IRA
You're welcome Gabriel! Glad you found the video helpful! Thanks for the tip. Yeah, it seems like converting to FDIC isn't necessary, but for some reason SPAXX wasn't working for me. I'm glad it worked for you, and a lot of others have mentioned the same!
Great video.Easy to follow step-by-step process! I have a question. I have an existing traditional IRA in which all contributions in the past years have been using non-deductible contributions. However it is a managed account. So for doing the backdoor ROTH contributions, should I open a new traditional IRA, which is not managed and I can keep it at the core position FDIC sweep? For this new account, I can make sure it’s at zero dollars after the conversion, but the previous traditional IRA account, which again has only non-deductible contributions, I can keep it as is right? Pro-rata rules only apply if I have a mix of deductible and non-deductible contributions in traditional IRA, right?
Thanks! Ok so if you have any assets in Trad IRA, I’m pretty sure that the pro rata rule would apply, even if they are nondeductible contributions. But I’m not sure. If you have further questions, I recommend asking a financial professional for further clarification prior to doing a backdoor Roth IRA so you don’t do something that will affect you later down the line with taxes! You can use the same Trad IRA to Roth convert and don’t need to open a new one.
Thank you for this very informative video! I have one question, does the contribution to the traditional IRA need to stay in the account for a specific amount of time before rolling over to the Roth IRA?
You’re welcome! It should stay in for as short as possible and should be Roth converted ASAP. Sometimes it takes a few days for the funds to clear depending on the bank.
Now that you’re engaged, you can no longer contribute to your INfidelity account hahaah. This was a great step by step, I actually have never done it and was wondering the process in case anyone asked me. Now you need the Schwab so you can deposit that 1.1c straight to the Roth with no impact to the $6500.. which was mind blowing when I found out you can do that! Wait, did I miss it? What is the point of the backdoor vs just the traditional? Great video Stan! Loved this actually!
Haha! I would never contribute to the INfidelity account. That account always has been off-limits! You need to contribute to a Roth IRA through the backdoor method if your MAGI is over the Roth limits. And yes, Tony, I do plan on getting the Schwab Platinum eventually, just not right now, I have my eye on another Platinum...
@@TheCreditFrog Ahhhh ok gotcha, funny, I wasn’t unaware of that MAGI limit for the Roth. And ooOoO, business platinum may be coming up. 👀 Thanks again Stan!
This was an excellent step by step guide Stanley! Roth IRAs are such a great addition to pretax retirement accounts.. I've been doing my backdoor roth IRA for the past few years with Vanguard.
Appreciate it Josh! Yeah, contributing to a Roth using the backdoor method is a pretty simple thing to do. Just gotta make sure that it won't trigger any tax complications! Vanguard is another great choice so that's awesome you've been contributing regularly to your Roth as well!
This video was the most helpful video on TH-cam about Roth IRA! Thanks again🙏🏽 I had about 22k in my Fidelity Rollover IRA. I opened a new Roth IRA account and transferred all the funds from Rollover IRA into the Roth last month. After couple weeks, I contributed 7K towards 2024 Roth contribution. I understand 2023 Roth contribution can be done until April 2024. My concern is if I'm still eligible to contribute towards 2023 Roth IRA since my Rollover IRA was not zero in Dec 2023?
You're welcome! Yeah, with your Rollover IRA Roth conversion and Roth IRA contribution in 2024, you will be taxed for ordinary income at $22k, but the Roth contribution will not be taxed. As for 2023, I would not perform a backdoor Roth as you still had assets in that Rollover IRA. I think if anything, you could potentially do just a straight-up non-deductible contribution to the Trad IRA for 2023, but then you'd have to Roth convert it in 2024 so you have $0 in that account for the 2024 backdoor Roth, and that would be taxed. You can consider just taking an L for the 2023 contribution, but of course, I would consult with a financial professional because there may be other options to consider that I'm not familiar with!
If I have a Roth IRA with investments in Chase and want to do everything through Fidelity? How would you go about that? Creating the new account in fidelity and following the steps in this video?
You could do a transfer between custodians and trasnfer the IRA from Chase to Fidelity. Fidelity is pretty good about instructing you on how to do that. I would do that first, and then create a Trad IRA at Fidelity to do the backdoor Roth entirely at Fidelity to make things simple.
while I was waiting for my funds to clear in the traditional IRA to be able to transfer them to the ROTH IRA, I earned $8. is that considered capital gains Ancillary steps number 2? and what do I do with that $8? do I transfer it to the ROTH and pass my maximum allowable contribution or do I leave it there in the traditional or withdraw it? please help
Hi Stan, this is an excellent resource for backdoor Roth conversion. Thanks so much for creating this. I did my Roth conversion for 2023 in November, I accrued $1.25 interest in Trad IRA and I did not Roth convert it. Trad IRA balance was $1.25 at the end of 31st Dec 2023. My current Trad IRA current balance is $1.25. For the 2024 roth conversion, should I Roth convert 7000 (including $1.25) from Trad IRA?
You're welcome! Glad you found it helpful. If you had $1.25 from last year, you should be able to contribute the full $7,000 in 2024 and then you can Roth convert $7,001.25, knowing that you'll pay ordinary income tax on that $1.25
That's great Christian! Yeah, I had the same issue as well, and couldn't figure out how to get it to work otherwise. Some people said that they could Roth convert with SPAXX, but I'm happy to hear that I'm not alone with specific problem, hah!
Thank you for the clear instruction. Very helpful. In you video, you went from Traditional IRA to Roth IRA almost immediately. Won’t this trigger the Step Transaction Doctrine from the IRS, which sees this as a single transaction from your account to Roth IRA, which is illegal for high earners? Shouldn’t you wait a month or two, if not longer to move the contribution from the Traditional IRA to the Roth IRA?
My positions in the Traditional IRA are FDIC-Insured Deposit Sweep. However, when I click on Transfer, my Roth (which is a mutual fund account) is not listed.
@@TheCreditFrog I called Fidelity and they said the reason I couldn't move it is because my rollover IRA is a brokerage account and my old Roth is a mutual fund account. So I have to call them to do it. Also, they said it wouldn't matter if it were in an FDIC account or a mutual fund cash account.
Can anyone speak to the "step transaction doctrine"? It appears Stan made his transfer from Trad IRA --> Roth IRA and then waited to transfer the funds after the New Year. Similarly, I've heard others (CPAs, etc.) say you should wait several months so that the appearance of the "step transaction doctrine" isn't applied to the transactions. Any help would be greatly appreciated here, especially if there is any IRS/CPA guidance on the step transaction doctrine in '24. I would prefer to NOT let the assets sit in the Trad IRA any longer than is necessary, but I don't know if that opens the door to the step transaction doctrine. Thanks
Yes, I would like to hear from any financial professionals as well about this. Just a small correction, the Trad IRA to Roth IRA transfer was one in the same year. I put the funds in a CMA prior to the new year, but didn't initiate the transfer from the CMA to the Trad IRA until the beginning of Jan. So the Trad IRA contribution and Roth conversion both occurred in the same year, for the same tax year.
Immediate hit on Subscribe button, right after watching this in detailed, TO THE POINT Video. Thank You much for these details given! A question - I opened Trad IRA and ROTH IRA on Friday and transferred 7000 to trad IRA. Today(Monday) I still don't see anything in positions page as how you have to transfer it to Roth IRA. How many days does it take to see positions on Trad IRA?
Thank you so much! Yes, so for your question, it takes 3-5 business days for the money to clear into the Traditional IRA. The amount of time depends on the bank and can take up to 7 days, typically
@@JustWatch-te7jw Sure thing! It's best to Roth convert ASAP so there's only a little interest to deal with at the end of the month (Roth convert that too, you'll just have to pay a small amount of ordinary income tax on it )
For higher-income earners, when transferring from traditional IRA to Roth IRA in order to do backdoor, Is it preferred to invest in the traditional IRA BEFORE doing the conversion? Or is it okay to invest AFTER conversion when it is in the Roth IRA?
It’s preferable to invest after you Roth convert so that there aren’t any capital gains that you’d have to pay ordinary income taxes on, which would trigger when you do the Roth conversion.
Thanks for your video. Based on Fidelity URL, we need to open a traditional IRA and make nondeductible contributions, but Fidelity traditional IRA does NOT give option for 'deductible' or 'non-deductible' contribution. Did it cause any problems for tax claim ?
Stan, thank you for the information. Would you be so kind to elaborate on what you said at 7:55 / "you are unable to do Roth Conversion" if your core position is not in "FDIC Insured Deposit Sweep" ... as in technically or legally ? I did some research and realized I could have done the transfer (from Traditional to Roth) even from the Money Market account. At least from a technical standpoint which is not possible anymore as I'm waiting for the core position to change/settle so I can do my conversion. Why the extra step and risking the accumulation of interest to change the core position ? What am I missing ?
Sure, no problem. Yeah, so this is from a technical perspective. When I do my Roth conversions, I had trouble doing so while my core position was in SPAXX, but once I switched this to FDIC, I was able to Roth convert with no issues. Others in the comments have told me that they have converted while in SPAXX with no problems. So I guess it depends on the person. Changing the core position would be the first thing to troubleshoot if Fidelity is not letting you do the Roth conversion. Hope that helps!
Could you please explain again in a detail version. So once we put money into the traditional IRA, do not buy stock yet, instead transfer that amount directly to the Roth IRA then buy stock from there? I don't really understand this. Please explain.
Bank to Trad IRA, then Trad IRA to Roth IRA, then you can buy investments in the Roth IRA. That's how I do it, but if you wanted to buy investments in Trad IRA first, you could, it just makes filling out form 8606 harder if you have capital gains.
You complete Form 8606 when you file your taxes for that tax year. So in 2025, you file your 2024 taxes so if your contribution was for 2024, that's when you would do it.
Do you have to change the Traditional IRA core position from SPAXX to FDIC? Cant you just transfer from the from the SPAXX cash traditional IRA to Roth IRA?
I made the max deposit of $7,000 to my traditional IRA last month, which grew to about $7,013 from sitting in a money market. Do I still convert this entire balance? Or is this $13 considered capital gains?
What do you do with the interest that accrues on the cash in the FDIC insured deposit sweep during the time it takes for the transfer from cash management into traditional IRA to clear? Great video!
Thanks! You can Roth convert those funds as well, but you have to pay ordinary income tax on it. Usually the amount is pretty small though so it's usually ok!
Great video! I didn’t know how to do this without possible tax consequences. Glad you mentioned that I can’t have any other IRAs because I have a traditional that has earnings so I will have to figure that one out.
This seems so easy. Annoying that I can’t contribute direct to my Roth IRA due to income limits. Still seems a little sketchy, so I hope I do it right. Great video!
@@TheCreditFrog thanks for the quick response. Quick question. Does it matter on time of year? I have a standard 401k and HSA that are both maxed out. Today, could I add $6,500 to a cash account then add to a standard IRA, then invest into a Roth IRA without issue? Of course I’d have to wait on cash to clear etc.
@@ryants1 Of course! So no it doesn't matter when you contribute during the year. I would just try to do this at least several months before December since when the money is in the Trad IRA, it may gain a little bit of interest, despite how fast you Roth convert it, and so you want to make sure that the Trad IRA has $0 by Dec 31st and that gives you several months to further Roth convert any small amount of interest as well.
@@TheCreditFrog thanks! So for example I can do this either Jan 1st or Dec 31st? Which is better? Or would that depend on where the money is invested at that time? I was thinking to invest to asap to get it in for 2023, then again on Jan 1st next year for 2024. Does that make sense?
@@ryants1 Yeah, so I would contribute ASAP if you can for 2023. You definitely don't want to contribute on Dec 31st because depending on when the contribution posts that can get confusing. But for 2024, it's up to you. I usually contribute it early January like I showed in the video and then I don't have to think about it the rest of the year, which is nice!
Thank you for the video! Quick question, at 2:30 you are not recommending doing Traditional -> Roth conversion for those who already have a funded Traditional IRA account. If I understand pro rata rule correctly, such conversion should not be a problem if Traditional IRA was fully funded with non-refundable post-tax money? Also, what kind of problems do we get when we convert a Traditional IRA account that has been around for a couple of years (assuming that it was funded with non-refundable post-tax money)?
You're welcome! Any money in Trad/SEP/SIMPLE/Rollover IRAs will count towards the pro rata rule, at least that's how I see it, but I'm not a financial professional. To be completely safe, if those IRAs had $0 by Dec 31st, that would be ideal. I would ask a financial professional for additional clarification based on your specific situation. If you Roth convert Trad IRA dollars, the amount you Roth convert will be taxed at your ordinary income tax rate. Hope that helps!
Thank you so much for the detailed explanation! If for whatever reason, the money in the IRA goes up or down slightly due to markets/interest right before we do the conversion, does that affect the amount of paperwork we have to do? (i.e. is it still just filling out the one 8606 form?)
You’re welcome! No, it shouldn’t affect it that much. If the money goes up due to interest or capital gains, you’ll have to pay ordinary income tax on that difference, but that will still be reported on Form 8606.
1. Do I need the checking account on fidelity or can i move cash from chase directly to the traditional ira? 2. FDIC core position doesnt cause any gains in the traditional IRA account right?
1. No, you can use your own back. 2. Unfortunately, it does, but so does all the choices. You'd have to Roth convert the extra funds to ensure there are $0 in the Trad IRA by Dec 31st
Question - why January and not another time of the year? Ex august, sept, etc of that tax year? If I haven’t contributed the prior year, should I still wait till January?
I contribute in January to be done with it at the beginning of the year. I contribute in 2024 for 2024, but you can contribute at any point throughout the year if you want.
Amazing video walking through all the steps!! My question is how important is the end of year timing? I always thought that the whole process had to be completed before Dec 31st but are you saying the conversion should be done Jan 1st of the next year, is that timing more ideal? It's stressful bc I am traveling over the holidays and new years and want to take care for this before I leave. So for 2024, what are the implications of doing everything late Dec 2024 as opposed to over late Dec 2024 and then conversion say Jan 3rd 2025?
Thanks! So I contributed for 2023 in Jan 2023. The stuff beforehand you're looking at is from Dec 2022. I advise doing the Roth conversion in the same tax year to make things simple!
No, you only need 1 Trad IRA and 1 Roth IRA to do this. If you already have a Trad IRA open with assets, I recommend you consult with a financial advisor to see what the best option for you would be.
Hey boss this is a great resource. This is my FIRST year having to do this because I exceed the MAGI limit in tax year 2022. Very quick question that I hope is straightforward enough: I am going through the process of doing this for tax year 2022, so let me know if I have this straight. I know I cannot directly do the Roth conversation for "tax year 2022" since I missed the December 31 2022 conversion deadline. Does that matter..? If I understand all this correctly (and going into Fidelity myself right now in Feb 2023), I'm able to still open/fund a Traditional IRA for tax year 2022. So two questions here: 1) Can the 2022 Traditional IRA funds that I just put $6k in, be transferred to my already-existing Fidelity Roth IRA (that I just started back in tax year 2021 so there's barely anything there) that simply, no questions asked? Or will it only let me do it as a contribution in my Roth IRA counting for tax year 2023? If there is no "specify which tax year" the transfer will take place and it just transfers the traditional ira monies straight to my roth ira account then great, (2) Am I still able to do my normal Roth IRA contribution for tax year 2023 (again, contribution, not transfer)? And yes, I expect to be under the MAGI limit when I do my taxes next year in 2023. Thanks!
Hey Tali! I'm glad you found the video helpful. Let me see if I can answer your questions. So for question #1, you still potentially could do a backdoor Roth IRA for 2022, but as this can get confusing, I would consult a CPA if you want to do this as the paperwork gets a little more difficult to complete correctly. It's easier to do the Roth contribution and conversion in the same tax year. Fidelity will let you do the 2022 contribution and conversion in 2023 without issue, but the tax implications are on you. Fidelity lets you choose the tax year you want to contribute to you and won't let you contribute any more than the maximum for that year. As for #2, you can do your normal contribution for the Roth IRA and will be under the MAGI limit in 2023 if you decided to do a backdoor Roth for 2022. Hope that answered your questions!
@@TheCreditFrog Completely understand and this is helpful. This seems pretty straight-forward. I did specify on my 2022 taxes that I am planning to contribute to a Traditional (not Roth) IRA account for tax year 2022 (before the April deadline), and because I make over the MAGI limit to qualify for a Traditional IRA deduction as well, there are NO deductions for me on my taxes that benefit me. If I proceed exactly how you did in the video with creating/funding the traditional IRA with NO gains on the account at all, and then transfer to my already-existing Roth IRA, I'm not seeing any tax implications (or how I need to pay taxes or how I benefitted by tax deductions since there were no deductions for me in my 2022 taxes, etc.) by doing this. And yes, I think the key factor is that Fidelity allows me to select 2022 tax year for funding my Traditional IRA and then easily allowing me to transfer those funds directly to my Roth, while still allowing me to contribute to 2023 Roth IRA (later on in year).
@@tali6144 Yup! If you want to do the backdoor Roth for your 2022 contribution, there's should be no tax issues, but you just want to be sure you fill out IRS Form 8606 correctly 👍!
First and foremost. Thank you for your content. It’s help me understand greatly. Can you please give your advice as to what to do if you have funded your Roth the normal way but now see that you will make more than the limit for year. The necessary steps if any. Thank you in advance.
You're welcome, Anthony! If you have already funded the Roth, but will exceed the income limit, this has to be undone. Depending on whether you have capital gains/losses, it becomes a little complicated. I recommend reaching out to a financial or tax professional for further guidance.
@@TheCreditFrog Hope its not too much to ask but would you please make a video regarding tax implications on this topic (like- what to mention or if there is any additional form , section needs to fill out?). We know that everyone’s situation is different and should consult with Tax professionals but would be nice to know what you would do in your situation. Thanks in advance.
@@TH-TravelingTales Sure, so I think that this topic can get complex very quickly, and I'm not the best person to ask about this - but I will say if you look up IRS Form 8606 and read that form and the instructions thoroughly, a lot of your questions and concerns will be addressed in that document. That's the form you need to fill out for a backdoor Roth IRA 👍!
Thanks, I followed the steps and opened the IRA and Cash Management accounts in fidelity I transferred funds from my bank to the Cash Management account and then to the Traditional IRA account. In the video, it looks like the Roth IRA account is missing. If I'm correct, should I also open a Roth IRA account and then transfer the amount from the Traditional IRA to the Roth IRA, followed by the Backdoor IRA as the last step? Is that correct?
The last step is to Roth convert your Trad IRA contribution to your Roth IRA. So yea, you will need a Roth IRA. There is no such thing as a backdoor Roth IRA. Backdoor Roth is the method not the account.
@TheCreditFrog, I reached the limit for 2024 contributions via backdoor. However my last contributions via traditional IRA gained $.39 before I could convert to ROTH IRA. What are the options to move the (excess) gains from traditonal traditional IRA?
Stan, great video-super helpful! Quick question about HSA accounts: Is it possible to contribute to an HSA up to the yearly limits without being enrolled in a High Deductible Health Plan (HDHP)?
This is great, thank you so much! I have a question: When the money is finally transferred to the Roth IRA on fidelity through the backdoor Roth IRA process, do you then transfer the money in the Roth IRA to the mutual/index fund account you want to buy as the last step? for example, invest in FDKLX or AMAGX? because wouldn't the money just sit in the Roth IRA account as cash and therefore not accrue any interest?
Question. My wife has some money in her Traditional IRA from about 2 years ago which was due to overcontribution to her ROTH IRA for that year (partial allowance since she her income was partially in the middle). She is making over the allowed limit and is now able to do backdoor ROTH conversion. How do we manage those current funds in her traditional IRA prior to the backdoor ROTH conversion?
You would have to Roth convert the entire amount in the Trad IRA to do the backdoor Roth properly. Having said that, this may trigger a huge tax bill so if that’s your situation, I recommend speaking to a financial professional to discuss your options.
Is it okay to use my Individual brokerage account as the transit station for my 7,000 contribution to settle before heading to my traditional IRA then Roth? Instead of a CMA.
Im very confused. I have a rollover ira from old 401ks. I now make too much to contribute to a Roth directly. Do i need to move over all of my funds to a roth to convert? Do i need to open a separate IRA for these post tax contributions and then backdoor it? Ugh. Its so complicated.
Hi. So the best way to go about this is to roll your Rollover IRA into your new 401k (if possible). If not, yes, you would have to Roth convert those funds so your Rollover IRA has $0 by Dec 31st. But by doing so, this will trigger a taxable event and those Roth converted funds will be subject to your ordinary income tax. Depending on the amount in that Rollover IRA, I recommend speaking to a financial professional to see the best option to go about doing this, for example, a Roth conversion ladder, if you would like to do a backdoor Roth IRA.
Hi, I’m starting on these … by mistake a opened a second ROTH IRA on fidelity, is that a problem? How do I delete the second one ? Help please. Thank you
I am back with more question. I have a Roth IRA with Fidelity that I opened last year and I contributed 6500 maximum amount. (For the first time; I never had IRA account previously). I am wanting to do the backdoor conversion for this year because last year was the only year I was eligible for Roth IRA due to my income. So when I do the conversion this year, I'll open a traditional IRA account first, but do I need to open a separate Roth IRA account (different from the Roth I opened last year)? or can I transfer money from my new traditional IRA to the last year's Roth IRA account?
Stan, You are the BEST!. I just want to be clear I understand. The ONLY way NOT to pay taxes on "Back Door Roth IRA deposit" is only if that person does NOT HAVE ANY IRA with monies in IRA in their name? So, if I contributed to a IRA in years past, I would NOT qualify and have to pay takes on the ROTH IRA contribution for the year it was deposited(with the exemption of Inherited IRA)?
You're welcome Mike! The short answer to your question is yes, you would pay taxes (possibly a lot of taxes) if you have money in another IRA. For sure, you'd want to consult a financial or tax professional for your situation, but if you have any IRA (exception Roth or Inherited) with money in it, I do not recommend doing a backdoor Roth IRA because the accounting gets pretty awful due to the pro rata rule. It can be done under the guidance of a CPA in certain situations advantageously, but that is beyond the scope of what I understand.
What if your Traditional IRA accumulates a couple of cents during the less than 1 day the money sits in that account before it is transferred to the Roth IRA?
@@TheCreditFrog thanks for the explanation, mine sat for a yr and now deciding to convert :( but it’s best to convert now and only pay income tax on what I accrued before it increases even more.
@TheCreditFrog - is it mandatory to have the CMA account with $0 rest of the year? Or can we have more than $10k funds in the account through out the year and transfer $7000 from it to Traditional IRA by December? Please advise.
You can have the CMA account with whatever amount you want throughout the year! It’s just like having a bank account, but within Fidelity to transfer to your Trad IRA.
I prefer to make monthly contributions. Is there any difference between doing a monthly conversion from traditional IRA to Roth IRA and then invest each month, or make a single max conversion to the roth IRA at the beginning of the year, and then invest a portion each month? Also, what do with the gained interest on the money held in the Traditional IRA before conversion? For example, lets say i contribute $500 to the traditional IRA and by the time I wait for it to clear, it earned 1$ in interest. Can I then convert $501 without taxes/penalty to Roth IRA, or only the $500 that was originally contributed? Thank you for the video!
There's no difference except you have to do that 12 times instead of once, which can be annoying to keep track of. In terms of the gained interest, you can Roth convert it, knowing that you'll pay ordinary income tax on it, but since it's a small amount, it's usually a negligible amount anyways.
instead of transferring the money to a cash management account first, can you transfer to a brokerage account instead, then transfer into the IRA? I don't have a cash management account but I do have a brokerage account, and I wasn't sure if I needed to open another account (cash management account)
Would appreciate some help. I followed the steps exactly, but looks like the short time money was in my traditional IRA was enough to generate $2.87 in interest and $0.89 dividend. I now have a balance of $3.76 in my traditional IRA. What do I do with this? Transfer it out so I have a $0 balance?
Hi Sara. Yes, Roth convert that money as well. You’ll have to pay ordinary income tax on that conversion but $2.87 won’t be a huge problem. The important thing is to have $0 by Dec 31st
Does your TIRA start earning interest automatically and immediately? How do we avoid pro-rata? do we just convert/move the TIRA to RIRA same day it clears?
Yes it accrues the moment you put it in. Ideally, it is Roth converted ASAP, but if there’s a banking hold, a few days may be unaboidable. You just have to Roth convert the extra and pay taxes on that amount.
I had rolled over my old employer 401k to my own rollover IRA account as I was asked to move my 401k from them. Does this make me ineligible to open traditional IRA account and do back door Roth. Thank you!!
Yes, at this point you’d have to Roth convert those funds, but that would generate a large tax bill. If you want to do a backdoor Roth IRA, I would ask a financial planner for your best options, which may include a Roth conversion ladder.
Is the fidelity cash management account deposit step necessary to make this work? Or can I just deposit money from my bank account into the Traditional IRA then convert the funds to the Roth account?
🌟 2024 UPDATE: The Roth Contribution limit is $7,000 ($8,000 for those 50 years and older)
It has also come to my attention that switching your core position to FDIC from SPAXX is not necessary when doing this backdoor Roth IRA strategy. However, some of you (like myself) were not able to do the final Roth conversion step and have found that switching the core position of the funds in the Traditional IRA from SPAXX to FDIC solved the issue. I don't know why this solution worked, but in any case, I presented it in this video to help any one else who encountered the same problem as me. In any case, happy retirement planning and let's make it a great 2024!
Does one have to wait between Cash Management/brokerage account to traditional and traditional to roth transfers? I talked to fidelity and they said you can do it immediately within seconds. Any implications of doing immediately?
@@sohilshrestha9506 I personally wait for funds to clear before doing a Roth conversion. I don't think there are any implications to doing it immediately, but it just gives me more peace of mind knowing that there's a record of my funds cleared in my Traditional IRA before it gets Roth converted. As for CMA/bank to Traditional IRA, I transfer it as soon as I'm ready.
This is the first time I will be doing it. I just want to avoid those pennies in interest. and make sure all the pitfalls are covered @@TheCreditFrog
Hey, thanks for the great video. If you do not have the money saved up at the start of the year, can you do this on a monthly basis as you get paid? Transfer the monthly breakdown of the new $7k limit ($583) into the traditional, and then immediately roll over every month, in order to put that money to work in the Roth IRA? Also can you still withdraw any contributions you make (not gains) to the roth IRA if you do it this way?
@@Ryanduncan27 Thanks! Yes, you can certainly do so. I would only say that Fidelity accrues interest at the end of the month so in order to keep the Trad IRA at $0 by Dec 31st, would recommend front loading contributions towards the end of the year so you can Roth convert any interest accrued before December.
As for contributions, I'm not entirely sure. I would ask a financial professional to make sure if this is ok.
I made this video in 2022 and a lot of people found it helpful, so I wanted to remake it even better 1 year later! Hope you enjoy and if you have any questions, leave a comment down below! 👇
Excellent video however, I am also a Fidelity user and I saw a flaw.
Do you have a fidelity cash management account which means when you deposit money into it it goes into a bank like interest-bearing account whereas I have the exact product except for mine is the brokerage account so when I deposit money it goes into the sweep account, which is SPAXX which earns a lot more interest
Other than that, this was hands-down, one of the best videos on the subject. I can’t wait for your new update come out.
@@missouri6014 Thanks! Yeah, using SPAXX is actually going to earn you more interest for sure, but really the CMA is meant only to be a temporary holding account for the funds until they get ultimately get transferred to the Trad IRA, then Roth IRA, and then gets invested immediately. So you're definitely right about that, but since the money is in there for such a short time, I thought it was ok. Appreciate the feedback and glad you found the video to be helpful!
@john-d1775 No prob! There is no maximum limit to a Roth conversion, but (as far as I know) you can only Roth convert up to the annual contribution limit without triggering a taxable event. If you Roth convert a larger amount, the remainder will be taxed as ordinary income.
Quick question how do you calculate your MAGI? I got a raise mid year last year and I’m not sure if that puts me over the limit for the Roth IRA
@@karlasanchez2422 There's a lot that goes into that. I would recommend you speak to a financial professional if you have specific questions.
Probably the best walkthrough I have watched! Thank you!
You’re welcome! Glad you found the video helpful!
bro is sitting there talking about making too much money in income each year to directly contribute to a roth ira while wearing a figs jacket on what a GOAT! thanks for explaining it so clearly man keep up the good work
You're welcome! Glad you found the video helpful!
This was the easiest way anyone has explained this process that I’ve seen. Thank you. I was nervous about this process but now it doesn’t seem so scary
You're welcome Jonathan! I'm glad that you found the video to be helpful!
This is exactly what I was looking for. The amount of detail you provided was perfect. I was thinking how to I change my core position and then you showed how! Fantastic content.
The only thing could add is information on the required forms to submit with your Tax return.
Thanks Donovan! I'm glad you found the content helpful, and I know that it can be somewhat confusing to change your core position so I'm happy that this was helpful as well!
Yes, this could be a helpful thing to explain. Maybe in a future video!
@user-tm1kb3fq4m It’s a pretty simple process, but if I ever make an updated video, I’ll be sure to include it👍!
Dude your video is right to the point, clear and easy to follow. Love it. Subscribed!
Hey, thanks! I’m glad you found it helpful, and I appreciate your support 👍!
Very helpful and thorough details! Exactly I was looking for. Currently, my employer offer 401K through fidelity and I had opened up ROTH IRA with fidelity in the past as I was eligible to contribute directly to the Roth IRA. In current situation, It seems I will now have to back door ROTH. Now I will just have to open transitional IRA SINCE i have already Roth with fidelity. Thank you again for making it a lot easier with simple explanation.
Glad it was helpful!
I've been so worried about this process but this video made it so simple! Thanks for the step by step!!!
Of course! No problem, and I'm glad I could help you out!
Perfect! This is what I've been looking for when it comes to a step by step explanation. Thank you!
Of course, Peter! Glad you found it helpful!
Wow, what an amazing video. Perfectly executed with clear, simple instructions and illustrations. Perfect editing too. Great job man!!!! Thank you 👍🏼
Thank you so much! I appreciate your kind words. Glad I could help you out with this video!
Same! This made the process so understandable! Thank you!!! Do you know if if in a back door IRA conversion if each conversion/contribution has to be in there for 5 years before tax free?
@@la54578 No problem! I'm not entirely sure about the 5-year rule. I'm pretty sure it applies to this as well because you're doing a Roth conversion of your contribution so it technically counts as a conversion. But if you wanted a true answer, I would speak to a financial professional.
Even I understood this video. Thank you for keeping it simple for the novice.
You're welcome! I'm glad I could help you out!
Great video! I made the mistake of contributing directly to the traditional IRA and then I had to wait to move it to the Roth IRA and the cash accumulated $4 of interest which then showed up on a tax form and I had to report it as income which seemed stupid 🤦♂️.
Next year I'll definitely make sure to contribute to my CMA first and let it settle before transferring.
Yeah, it’s super annoying when it does that. They key is to do the Roth conversion the moment the funds hit your Traditional IRA. I do this the same day and still got $.60 of interest at the time, but the IRS rounds down so it shows up on my Form 8606 as negligible hah!
@@TheCreditFrog What are you planning to do with the $.60 of interest? Are you going to withdraw it or keep it in the traditional IRA account? Thanks!
@AustenOw Roth convert it. I’ll have to pay ordinary income tax on it but that would be a small amount.
@@TheCreditFrog Thank you! There is $.85 of interest in my traditional IRA account left over after my conversion. Would it be an issue if I just transferred that .85 to my CMA or other bank account? Or is it mandatory that the $.85 be converted also? Thanks again. I'm a subscriber!
@aau_626 Yeah, I wouldn’t withdraw any interest from your Traditional IRA if you could help it. Usually not a great idea. I’m not a financial professional, so I’m not super familiar with the specific consequences, but I would just Roth convert those funds to keep it simple. Thanks, I really appreciate the support!
Thanks for the video, Stan. I successfully did my first backdoor Roth IRA for 2023 using your video last year. The only difference I got from your video was that while waiting a few days for the $6,500 funds to clear in my traditional IRA before transferring them to a Roth IRA, I earned around 6 dollars in interest. Now that I want to contribute to the Backdoor Roth IRA for 2024 ($7000), I am unsure about what to do with the remaining 6 dollars in my traditional IRA.
That's awesome! Yeah, the backdoor Roth is just something you do every year, but once you do it once, it gets pretty routine! As for the $6 in interest, you can definitely Roth convert those funds with no problem. You'll have to pay ordinary income tax on that $6, but that shouldn't be too bad. In the future, you can Roth convert the entire amount + interest in the same year so that your Trad IRA has $0 on Dec 31st. That will make filling out Form 8606 much simpler when you file your taxes!
Quick question - so once you transfer all the funds to the Roth account, you just the traditional Ira open with $0 bal until the following year when you go through this whole process again? I just want to confirm. This video is very helpful. Thank you.
@@mching7282 Yes, that is exactly what you do!
@@TheCreditFrogwould he not get a penalty for contributing $7006.00 instead of 7k though?
@ yes, he would have to pay ordinary income tax on the $6, assuming he had $0 in any other Trad IRA/SEP/SIMPLE IRAs by Dec 31st
This was a super helpful video. I've always been curious as to how to actually perform one of these. Since I am still eligible to contribute to a Roth IRA without needing to use the backdoor method, I'm set for now, but this will be super good to look back on in the future. Now I just gotta get my income up!
Glad you found the video helpful Spencer! Yes, it's a retirement strategy that is pretty simple to understand and can be very helpful to get some more money into that Roth once you're over the income limit! You'll be over this limit sooner than you think, and when that time comes, you'll know exactly how to handle this situation 👍. Also Green looks great on you 🤩!
@@TheCreditFrog I'm excited for the day! And I'm loving that green badge. Definitely looks nice!
Wonderfully explained and so much easier to do this on Fidelity than the Vanguard site. Thank you.
You're welcome! Glad to hear that it's much easier over on Fidelity!
Great step-by-step video. However, the last and most important thing is to invest that money which was converted to some good MFs.
Thanks! Yes, investing those funds after the Roth conversion is very important too!
Thank you for this video. I've been feeling quite intimidated about this process. I've read a lot of blogs about this process and they make it seem super complicated. Thank you for this video because you showed that it's all very simple and straightforward. Definitely calmed my nerves for sure. Thank you!
You’re welcome! Happy to hear you found this video to be helpful!
Thanks for the great video. @9:30 of your video, you to avoid the tax, "3. Have no other funds in other IRAs (excluding Roth/Inherited)". I don't understand this. Can you explain it? I have a Fidelity "Rollover IRA" account. Will it cause tax issues? Thanks in advance!
You’re welcome! Yes Rollover IRAs will cause tax issues. That IRA needs to have a $0 balance by Dec 31st for the backdoor Roth to work. Pleas consult with a financial professional to understand your options, which may include a Roth conversion ladder!
That was super easy to understand and I’ll be setting this up bc my 401k and brokerage acct is already with fidelity.
Awesome! That will make tracking all your retirement accounts easy
This is an awesome video here Stan! And even though I'm not currently in the high-income bracket, it'll surely be super helpful for all those high-income earners that make more than $138K and still want to contribute to a Roth.
Thanks Matt! I know you will get there soon! Although since you’re getting married this year, the numbers may change in your favor. If anything, this video will be here when you need it!
Though this video is a little old, I just stumbled upon it. This is GOLD. Thank you so much
You’re welcome! Glad you found it helpful!
Great information Stan! I can definitely see this video being an evergreen video based on how clear and well explained the information is!
Thanks Eric! Yeah, I hope that this video will help anyone that is trying to perform a backdoor Roth with Fidelity. It was super confusing the first time I tried to do it so hopefully others can learn from this video!
This is really clear and lots of nuances are explained that I cannot find in other videos. Thank you bro! One thing I want to double-check is that the reason you transferred your money to CMA at the end of Dec, 2022 and waited until Jan. 1st, 2023 to do the Roth Conversion is because you want to keep your Traditional IRA 0 balance to avoid pro-rata-rule for the 2022 Roth Conversion you did maybe on Jan. 2022, is that correct? So keeping 0 balance by Dec. 31, 2022 is for the tax year 2022, not for tax year 2023? And the Roth conversion you did in this video is for the 2023 tax year, is that correct? Thanks!
You're welcome! So in this video, I actually contribute in Jan 2023 for tax year 2023. I personally contribute the funds at the beginning of the year, but it's still very important to keep the Traditional IRA at a $0 balance to avoid the pro rata rule like you mentioned. So yes, you could extrapolate this example for Jan 2022 for the Roth conversion for tax year 2022. It's always better to do the Roth conversion in the same tax year as the contribution.
What a great video, Stan! Thank you so much. Quick question: I have both a SEP and traditional IRA. From my understanding, the SEP limit is based on your self-employed income, however I keep reading that the limit for all IRA contributions is $6,500 for 2023. Can you explain that better or if there is something I may be missing? Additionally to avoid pro rata, I would still need to make sure that both the SEP and traditional IRA balances are zero by the end of the year that I completed the conversion to Roth correct?
Hi Selby! Of course, glad you enjoyed the video. The SEP limit ($61k in 2022) is separate from the Roth IRA limit. And yes, to avoid pro rata, both Traditional IRA and SEP IRA must be zero by 12/31!
I have 2 different old IRAs. Just to make sure, can I transfer them both in Roth IRAs in January 2024?
Immediate new subscriber just from this one video, thank you so much for being so thorough and guiding us through step-by-step style by showing us, instead of just talking about it.
Of course! I’m glad that this video was helpful, and I appreciate your support!
first!
You got first Josh! 🥇
Thanks for making this simple. Articles make it seem so difficult and confusing with technical jargon. Subbed
You're welcome! Glad you found the video helpful. Appreciate the support!
Best training after watching 20 others. Thanks!
You're welcome! Glad you found it helpful!
Thanks for making this video. This is really helping out. When I called Fidelity, they said doing a backdoor Roth IRA would be easy. But after watching your TH-cam video and reading most of the comments with people's questions, I found out about my mistakes. I had a rollover IRA from previous jobs and tried to do a backdoor IRA while leaving the rollover IRA. But as the comments said, I should transfer the money. So I transferred the rollover IRA to my 403(b) to avoid tax. I wouldn't have thought about this until I read most of the comments with your answers. That really helped me a lot. Anyway, thanks so much for making this video. I have a question about the time frame for a backdoor IRA. You said that it takes a few days to be eligible to transfer from a traditional IRA to a Roth IRA, but after a week, it still didn't work. So I called Fidelity, and they said I have to wait for 16 days after the money settles in my traditional IRA. Is it true that it takes so long, like three weeks, to transfer money from a traditional IRA to a Roth IRA? That means I might have some interest during that time, right?
Thanks! Yeah it depends on the bank how long it will take to clear. You will certainly accrue interest during this time, but you can Roth convert that amount too and just pay ordinary income tax on that interest.
Hello Stan, thanks for sharing this video. As other commenters of said, this was explained claring and using a common application. It is clear and will help me to set up mine. Subscribed to support "The credit frog"
I appreciate that! Thank you so much for your support, and glad I could help you set up your own backdoor Roth IRA!
Good stuff. Looking to do just this. You made this clear to me this is done at the end of the year. Sweet. Thanks for sharing
You're welcome! Just to be clear, although you can do this at the end of the year, I recommend doing the Roth conversion at the beginning of the year. But it's nice to have all the contribution money saved up at the end of year so when the new year rolls around, you're ready to max out that IRA contribution!
ThankQ . I moved 6500 to traditional IRA in November 2023 and planning to do backdoor roth now(feb 2024). Your ancillary #1 says to do it in same year.. is there any additional steps i need to do for my scenario?
Yes, you'll have to fill out Form 8606 a little differently because of this. I would follow the provided instructions with the form, but if it's confusing, definitely would recommend consulting with a financial professional to make sure it's filled out right!
Just recently recharacterized my Roth IRA to Trad IRA, and a few weeks later I did the backdoor Roth.
Great!
Just did this today. I did put it in a previous rollover ira (traditional) that was funded. Is this against the pro rata rule? I planned to send the whole amount to my roth and complete the 8606 form.
@@SavannahHibner as long as this is the only Trad IRA or equivalent you have with assets in it, it should be ok
@@TheCreditFrogthank you for responding, say it has over 7000 in it now will I be able to backdoor roth only 7000 or the whole amount? And paying tax on the previous traditional contributions?
@SavannahHibner when you do the Roth conversion, you’ll have to convert the entire amount. You’ll pay ordinary income tax on any capital gains from the previous $7k in that account.
thanks for the video!, just as an FYI, you don't need to convert to your Core position on Traditional IRA from SPAXX to FDIC-Insured Deposit Sweep Program, it is possible Traditional IRA with core in SPAXX direct to ROTH IRA
You're welcome Gabriel! Glad you found the video helpful! Thanks for the tip. Yeah, it seems like converting to FDIC isn't necessary, but for some reason SPAXX wasn't working for me. I'm glad it worked for you, and a lot of others have mentioned the same!
Great video. Thanks for the clear explanation of step by step process.
You’re welcome Sony! Glad you found it helpful!
Best video explanation on backdoor roth conversion!
Thank you! I'm glad you found it helpful!
Thank You ! Perfect details in your video . perfectly explain its enough information about how to increase funds position in fidelity .
You’re welcome! Glad you found the video helpful!
Great video.Easy to follow step-by-step process!
I have a question. I have an existing traditional IRA in which all contributions in the past years have been using non-deductible contributions. However it is a managed account.
So for doing the backdoor ROTH contributions, should I open a new traditional IRA, which is not managed and I can keep it at the core position FDIC sweep?
For this new account, I can make sure it’s at zero dollars after the conversion, but the previous traditional IRA account, which again has only non-deductible contributions, I can keep it as is right? Pro-rata rules only apply if I have a mix of deductible and non-deductible contributions in traditional IRA, right?
Thanks! Ok so if you have any assets in Trad IRA, I’m pretty sure that the pro rata rule would apply, even if they are nondeductible contributions. But I’m not sure. If you have further questions, I recommend asking a financial professional for further clarification prior to doing a backdoor Roth IRA so you don’t do something that will affect you later down the line with taxes! You can use the same Trad IRA to Roth convert and don’t need to open a new one.
Thank you for this very informative video! I have one question, does the contribution to the traditional IRA need to stay in the account for a specific amount of time before rolling over to the Roth IRA?
You’re welcome! It should stay in for as short as possible and should be Roth converted ASAP. Sometimes it takes a few days for the funds to clear depending on the bank.
Now that you’re engaged, you can no longer contribute to your INfidelity account hahaah.
This was a great step by step, I actually have never done it and was wondering the process in case anyone asked me.
Now you need the Schwab so you can deposit that 1.1c straight to the Roth with no impact to the $6500.. which was mind blowing when I found out you can do that!
Wait, did I miss it? What is the point of the backdoor vs just the traditional?
Great video Stan! Loved this actually!
Haha! I would never contribute to the INfidelity account. That account always has been off-limits! You need to contribute to a Roth IRA through the backdoor method if your MAGI is over the Roth limits. And yes, Tony, I do plan on getting the Schwab Platinum eventually, just not right now, I have my eye on another Platinum...
@@TheCreditFrog Ahhhh ok gotcha, funny, I wasn’t unaware of that MAGI limit for the Roth.
And ooOoO, business platinum may be coming up. 👀
Thanks again Stan!
This was an excellent step by step guide Stanley! Roth IRAs are such a great addition to pretax retirement accounts.. I've been doing my backdoor roth IRA for the past few years with Vanguard.
Appreciate it Josh! Yeah, contributing to a Roth using the backdoor method is a pretty simple thing to do. Just gotta make sure that it won't trigger any tax complications! Vanguard is another great choice so that's awesome you've been contributing regularly to your Roth as well!
@@TheCreditFroghow do you make sure it doesn’t flag any tax contributions ?
@@mikelaary911 Not sure if this answers your question, but Fidelity won’t let you contribute more than allowed for the year.
Can you explain again why you waited until the end of December and waited until January 1st to move the money from you CMA to your traditional IRA?
@@AZ-bq3bb I deposit money in the beginning of the year for the same year. So my 2024 contribution was done last January, 11 months ago.
What happens if you have gains in the traditional IRA? Can you use those gains towards the contribution to the Roth IRA?
You Roth convert that amount as well, and you’ll pay ordinary income tax on that amount.
This video was the most helpful video on TH-cam about Roth IRA! Thanks again🙏🏽
I had about 22k in my Fidelity Rollover IRA. I opened a new Roth IRA account and transferred all the funds from Rollover IRA into the Roth last month. After couple weeks, I contributed 7K towards 2024 Roth contribution.
I understand 2023 Roth contribution can be done until April 2024. My concern is if I'm still eligible to contribute towards 2023 Roth IRA since my Rollover IRA was not zero in Dec 2023?
You're welcome! Yeah, with your Rollover IRA Roth conversion and Roth IRA contribution in 2024, you will be taxed for ordinary income at $22k, but the Roth contribution will not be taxed. As for 2023, I would not perform a backdoor Roth as you still had assets in that Rollover IRA. I think if anything, you could potentially do just a straight-up non-deductible contribution to the Trad IRA for 2023, but then you'd have to Roth convert it in 2024 so you have $0 in that account for the 2024 backdoor Roth, and that would be taxed. You can consider just taking an L for the 2023 contribution, but of course, I would consult with a financial professional because there may be other options to consider that I'm not familiar with!
@@TheCreditFrogThank you for the reply!
If I have a Roth IRA with investments in Chase and want to do everything through Fidelity? How would you go about that? Creating the new account in fidelity and following the steps in this video?
You could do a transfer between custodians and trasnfer the IRA from Chase to Fidelity. Fidelity is pretty good about instructing you on how to do that. I would do that first, and then create a Trad IRA at Fidelity to do the backdoor Roth entirely at Fidelity to make things simple.
while I was waiting for my funds to clear in the traditional IRA to be able to transfer them to the ROTH IRA, I earned $8. is that considered capital gains Ancillary steps number 2? and what do I do with that $8? do I transfer it to the ROTH and pass my maximum allowable contribution or do I leave it there in the traditional or withdraw it? please help
Roth convert it. You’ll end up paying ordinary income tax on the $8.
Awesome best I've watched paying attention to details and situational awareness 👍🏼👍🏼
Thanks! I really appreciate your support, and glad you found the video helpful!
Hi Stan, this is an excellent resource for backdoor Roth conversion. Thanks so much for creating this. I did my Roth conversion for 2023 in November, I accrued $1.25 interest in Trad IRA and I did not Roth convert it. Trad IRA balance was $1.25 at the end of 31st Dec 2023. My current Trad IRA current balance is $1.25. For the 2024 roth conversion, should I Roth convert 7000 (including $1.25) from Trad IRA?
You're welcome! Glad you found it helpful. If you had $1.25 from last year, you should be able to contribute the full $7,000 in 2024 and then you can Roth convert $7,001.25, knowing that you'll pay ordinary income tax on that $1.25
I learned a TON!! I will click 100 thumbs up if they allow. 😁Thank you so much!
Of course! Glad you enjoyed the video and learned a lot!
Great video, very well done. Can you explain to me why the HSA was used and what happens to those funds after you deposit in the IRA account?
HSA was separate from backdoor Roth IRA. After you put funds in, they need to be invested!
Thanks! Changing the core position was the step I was missing in getting this to work and only found that info here :)
That's great Christian! Yeah, I had the same issue as well, and couldn't figure out how to get it to work otherwise. Some people said that they could Roth convert with SPAXX, but I'm happy to hear that I'm not alone with specific problem, hah!
Thank you for the clear instruction. Very helpful. In you video, you went from Traditional IRA to Roth IRA almost immediately. Won’t this trigger the Step Transaction Doctrine from the IRS, which sees this as a single transaction from your account to Roth IRA, which is illegal for high earners? Shouldn’t you wait a month or two, if not longer to move the contribution from the Traditional IRA to the Roth IRA?
You’re welcome! If you’d like an explanation to that, I’d recommend speaking to a lawyer or tax professional!
My positions in the Traditional IRA are FDIC-Insured Deposit Sweep. However, when I click on Transfer, my Roth (which is a mutual fund account) is not listed.
If they are both at Fidelity, the Roth IRA should be listed as a transfer option.
@@TheCreditFrog I called Fidelity and they said the reason I couldn't move it is because my rollover IRA is a brokerage account and my old Roth is a mutual fund account. So I have to call them to do it. Also, they said it wouldn't matter if it were in an FDIC account or a mutual fund cash account.
@@Han-dle598 Great! Thanks for checking that out and leaving your data point!
Can anyone speak to the "step transaction doctrine"? It appears Stan made his transfer from Trad IRA --> Roth IRA and then waited to transfer the funds after the New Year. Similarly, I've heard others (CPAs, etc.) say you should wait several months so that the appearance of the "step transaction doctrine" isn't applied to the transactions. Any help would be greatly appreciated here, especially if there is any IRS/CPA guidance on the step transaction doctrine in '24. I would prefer to NOT let the assets sit in the Trad IRA any longer than is necessary, but I don't know if that opens the door to the step transaction doctrine. Thanks
Yes, I would like to hear from any financial professionals as well about this. Just a small correction, the Trad IRA to Roth IRA transfer was one in the same year. I put the funds in a CMA prior to the new year, but didn't initiate the transfer from the CMA to the Trad IRA until the beginning of Jan. So the Trad IRA contribution and Roth conversion both occurred in the same year, for the same tax year.
@@TheCreditFrog Thank you.
Dammit! How have I missed this for so many years! Just did it. Thanks!
No problem! Hey, as long as you get started, that’s what’s most important!
Thank you for this video! You saved me a call to Fidelity :)
You're welcome Andrea! Congrats on getting that backdoor Roth in early this year!
Subscribed. this is the clearest video on the subject so far.
Thank you! I'm glad you found the video helpful!
Immediate hit on Subscribe button, right after watching this in detailed, TO THE POINT Video. Thank You much for these details given! A question - I opened Trad IRA and ROTH IRA on Friday and transferred 7000 to trad IRA. Today(Monday) I still don't see anything in positions page as how you have to transfer it to Roth IRA. How many days does it take to see positions on Trad IRA?
Thank you so much! Yes, so for your question, it takes 3-5 business days for the money to clear into the Traditional IRA. The amount of time depends on the bank and can take up to 7 days, typically
Thank you for quick response. Is it suggested to convert my Trad IRA to Roth IRA right after that or should I wait for few days/weeks/months?
@@JustWatch-te7jw Sure thing! It's best to Roth convert ASAP so there's only a little interest to deal with at the end of the month (Roth convert that too, you'll just have to pay a small amount of ordinary income tax on it )
For higher-income earners, when transferring from traditional IRA to Roth IRA in order to do backdoor,
Is it preferred to invest in the traditional IRA BEFORE doing the conversion? Or is it okay to invest AFTER conversion when it is in the Roth IRA?
It’s preferable to invest after you Roth convert so that there aren’t any capital gains that you’d have to pay ordinary income taxes on, which would trigger when you do the Roth conversion.
Thanks for your video. Based on Fidelity URL, we need to open a traditional IRA and make nondeductible contributions, but Fidelity traditional IRA does NOT give option for 'deductible' or 'non-deductible' contribution. Did it cause any problems for tax claim ?
You report this on Form 8606 when you file your taxes
Once your in the Roth IRA
How do you specify what Roth IRA investment you want
Ie. Domestic Equity vs international
Mid-cap vs large-cap etx
You can choose your investments on the Fidelity website and trade as you would with any other financial institution?
Stan, thank you for the information. Would you be so kind to elaborate on what you said at 7:55 / "you are unable to do Roth Conversion" if your core position is not in "FDIC Insured Deposit Sweep" ... as in technically or legally ? I did some research and realized I could have done the transfer (from Traditional to Roth) even from the Money Market account. At least from a technical standpoint which is not possible anymore as I'm waiting for the core position to change/settle so I can do my conversion. Why the extra step and risking the accumulation of interest to change the core position ? What am I missing ?
Sure, no problem. Yeah, so this is from a technical perspective. When I do my Roth conversions, I had trouble doing so while my core position was in SPAXX, but once I switched this to FDIC, I was able to Roth convert with no issues. Others in the comments have told me that they have converted while in SPAXX with no problems. So I guess it depends on the person. Changing the core position would be the first thing to troubleshoot if Fidelity is not letting you do the Roth conversion. Hope that helps!
Could you please explain again in a detail version. So once we put money into the traditional IRA, do not buy stock yet, instead transfer that amount directly to the Roth IRA then buy stock from there? I don't really understand this. Please explain.
Bank to Trad IRA, then Trad IRA to Roth IRA, then you can buy investments in the Roth IRA. That's how I do it, but if you wanted to buy investments in Trad IRA first, you could, it just makes filling out form 8606 harder if you have capital gains.
@@TheCreditFrog thank you ❤
Whats about form you need to feel it up before to do this step? 8606 ? When you fill it up
You complete Form 8606 when you file your taxes for that tax year. So in 2025, you file your 2024 taxes so if your contribution was for 2024, that's when you would do it.
Do you have to change the Traditional IRA core position from SPAXX to FDIC? Cant you just transfer from the from the SPAXX cash traditional IRA to Roth IRA?
You don’t have to as I explained in the pinned comment, but it could be potential workaround if Fidelity doesn’t let you do the Roth conversion!
I made the max deposit of $7,000 to my traditional IRA last month, which grew to about $7,013 from sitting in a money market. Do I still convert this entire balance? Or is this $13 considered capital gains?
Yes you’ll convert the entire balance and have to pay ordinary income tax on that $13
What do you do with the interest that accrues on the cash in the FDIC insured deposit sweep during the time it takes for the transfer from cash management into traditional IRA to clear? Great video!
Thanks! You can Roth convert those funds as well, but you have to pay ordinary income tax on it. Usually the amount is pretty small though so it's usually ok!
Great video! I didn’t know how to do this without possible tax consequences. Glad you mentioned that I can’t have any other IRAs because I have a traditional that has earnings so I will have to figure that one out.
Thanks! Yup, probably best to speak to a financial professional to see what your options are if you wanted to do this strategy.
This seems so easy. Annoying that I can’t contribute direct to my Roth IRA due to income limits. Still seems a little sketchy, so I hope I do it right. Great video!
It’s pretty easy once you get the hang of it! Glad you found the video helpful!
@@TheCreditFrog thanks for the quick response. Quick question. Does it matter on time of year? I have a standard 401k and HSA that are both maxed out. Today, could I add $6,500 to a cash account then add to a standard IRA, then invest into a Roth IRA without issue? Of course I’d have to wait on cash to clear etc.
@@ryants1 Of course! So no it doesn't matter when you contribute during the year. I would just try to do this at least several months before December since when the money is in the Trad IRA, it may gain a little bit of interest, despite how fast you Roth convert it, and so you want to make sure that the Trad IRA has $0 by Dec 31st and that gives you several months to further Roth convert any small amount of interest as well.
@@TheCreditFrog thanks! So for example I can do this either Jan 1st or Dec 31st? Which is better? Or would that depend on where the money is invested at that time? I was thinking to invest to asap to get it in for 2023, then again on Jan 1st next year for 2024. Does that make sense?
@@ryants1 Yeah, so I would contribute ASAP if you can for 2023. You definitely don't want to contribute on Dec 31st because depending on when the contribution posts that can get confusing. But for 2024, it's up to you. I usually contribute it early January like I showed in the video and then I don't have to think about it the rest of the year, which is nice!
Thank you for the video! Quick question, at 2:30 you are not recommending doing Traditional -> Roth conversion for those who already have a funded Traditional IRA account. If I understand pro rata rule correctly, such conversion should not be a problem if Traditional IRA was fully funded with non-refundable post-tax money?
Also, what kind of problems do we get when we convert a Traditional IRA account that has been around for a couple of years (assuming that it was funded with non-refundable post-tax money)?
You're welcome! Any money in Trad/SEP/SIMPLE/Rollover IRAs will count towards the pro rata rule, at least that's how I see it, but I'm not a financial professional. To be completely safe, if those IRAs had $0 by Dec 31st, that would be ideal. I would ask a financial professional for additional clarification based on your specific situation. If you Roth convert Trad IRA dollars, the amount you Roth convert will be taxed at your ordinary income tax rate. Hope that helps!
Thank you so much for the detailed explanation! If for whatever reason, the money in the IRA goes up or down slightly due to markets/interest right before we do the conversion, does that affect the amount of paperwork we have to do? (i.e. is it still just filling out the one 8606 form?)
You’re welcome! No, it shouldn’t affect it that much. If the money goes up due to interest or capital gains, you’ll have to pay ordinary income tax on that difference, but that will still be reported on Form 8606.
1. Do I need the checking account on fidelity or can i move cash from chase directly to the traditional ira? 2. FDIC core position doesnt cause any gains in the traditional IRA account right?
1. No, you can use your own back. 2. Unfortunately, it does, but so does all the choices. You'd have to Roth convert the extra funds to ensure there are $0 in the Trad IRA by Dec 31st
Question - why January and not another time of the year? Ex august, sept, etc of that tax year? If I haven’t contributed the prior year, should I still wait till January?
I contribute in January to be done with it at the beginning of the year. I contribute in 2024 for 2024, but you can contribute at any point throughout the year if you want.
Amazing video walking through all the steps!! My question is how important is the end of year timing? I always thought that the whole process had to be completed before Dec 31st but are you saying the conversion should be done Jan 1st of the next year, is that timing more ideal? It's stressful bc I am traveling over the holidays and new years and want to take care for this before I leave. So for 2024, what are the implications of doing everything late Dec 2024 as opposed to over late Dec 2024 and then conversion say Jan 3rd 2025?
Thanks! So I contributed for 2023 in Jan 2023. The stuff beforehand you're looking at is from Dec 2022. I advise doing the Roth conversion in the same tax year to make things simple!
@@TheCreditFrog Ah gotcha, thanks for explaining that, I should just take care of it earlier in the year!
So, Do i need to open a new fidelity account with new traditional IRA as my current fidelity has existing IRA balance in it?
No, you only need 1 Trad IRA and 1 Roth IRA to do this. If you already have a Trad IRA open with assets, I recommend you consult with a financial advisor to see what the best option for you would be.
What type of cash management account do you use? FDIC insured or the Fidelity Government Money Market Fund (SPAXX)?
The one by Fidelity! I use FDIC for holding before the Roth conversion.
Hey boss this is a great resource. This is my FIRST year having to do this because I exceed the MAGI limit in tax year 2022.
Very quick question that I hope is straightforward enough:
I am going through the process of doing this for tax year 2022, so let me know if I have this straight. I know I cannot directly do the Roth conversation for "tax year 2022" since I missed the December 31 2022 conversion deadline. Does that matter..? If I understand all this correctly (and going into Fidelity myself right now in Feb 2023), I'm able to still open/fund a Traditional IRA for tax year 2022. So two questions here: 1) Can the 2022 Traditional IRA funds that I just put $6k in, be transferred to my already-existing Fidelity Roth IRA (that I just started back in tax year 2021 so there's barely anything there) that simply, no questions asked? Or will it only let me do it as a contribution in my Roth IRA counting for tax year 2023? If there is no "specify which tax year" the transfer will take place and it just transfers the traditional ira monies straight to my roth ira account then great, (2) Am I still able to do my normal Roth IRA contribution for tax year 2023 (again, contribution, not transfer)? And yes, I expect to be under the MAGI limit when I do my taxes next year in 2023.
Thanks!
Hey Tali! I'm glad you found the video helpful. Let me see if I can answer your questions.
So for question #1, you still potentially could do a backdoor Roth IRA for 2022, but as this can get confusing, I would consult a CPA if you want to do this as the paperwork gets a little more difficult to complete correctly. It's easier to do the Roth contribution and conversion in the same tax year. Fidelity will let you do the 2022 contribution and conversion in 2023 without issue, but the tax implications are on you. Fidelity lets you choose the tax year you want to contribute to you and won't let you contribute any more than the maximum for that year.
As for #2, you can do your normal contribution for the Roth IRA and will be under the MAGI limit in 2023 if you decided to do a backdoor Roth for 2022.
Hope that answered your questions!
@@TheCreditFrog Completely understand and this is helpful. This seems pretty straight-forward. I did specify on my 2022 taxes that I am planning to contribute to a Traditional (not Roth) IRA account for tax year 2022 (before the April deadline), and because I make over the MAGI limit to qualify for a Traditional IRA deduction as well, there are NO deductions for me on my taxes that benefit me. If I proceed exactly how you did in the video with creating/funding the traditional IRA with NO gains on the account at all, and then transfer to my already-existing Roth IRA, I'm not seeing any tax implications (or how I need to pay taxes or how I benefitted by tax deductions since there were no deductions for me in my 2022 taxes, etc.) by doing this. And yes, I think the key factor is that Fidelity allows me to select 2022 tax year for funding my Traditional IRA and then easily allowing me to transfer those funds directly to my Roth, while still allowing me to contribute to 2023 Roth IRA (later on in year).
@@tali6144 Yup! If you want to do the backdoor Roth for your 2022 contribution, there's should be no tax issues, but you just want to be sure you fill out IRS Form 8606 correctly 👍!
First and foremost. Thank you for your content. It’s help me understand greatly.
Can you please give your advice as to what to do if you have funded your Roth the normal way but now see that you will make more than the limit for year. The necessary steps if any.
Thank you in advance.
You're welcome, Anthony! If you have already funded the Roth, but will exceed the income limit, this has to be undone. Depending on whether you have capital gains/losses, it becomes a little complicated. I recommend reaching out to a financial or tax professional for further guidance.
This was very helpful video. I was looking for something like this for a while. Thanks and Keep up the good work Stan!
Hey, glad you enjoyed it Tanjim! Hopefully this video has made this process easier for you!
@@TheCreditFrog Hope its not too much to ask but would you please make a video regarding tax implications on this topic (like- what to mention or if there is any additional form , section needs to fill out?). We know that everyone’s situation is different and should consult with Tax professionals but would be nice to know what you would do in your situation. Thanks in advance.
@@TH-TravelingTales Sure, so I think that this topic can get complex very quickly, and I'm not the best person to ask about this - but I will say if you look up IRS Form 8606 and read that form and the instructions thoroughly, a lot of your questions and concerns will be addressed in that document. That's the form you need to fill out for a backdoor Roth IRA 👍!
Thanks, I followed the steps and opened the IRA and Cash Management accounts in fidelity I transferred funds from my bank to the Cash Management account and then to the Traditional IRA account. In the video, it looks like the Roth IRA account is missing. If I'm correct, should I also open a Roth IRA account and then transfer the amount from the Traditional IRA to the Roth IRA, followed by the Backdoor IRA as the last step? Is that correct?
The last step is to Roth convert your Trad IRA contribution to your Roth IRA. So yea, you will need a Roth IRA. There is no such thing as a backdoor Roth IRA. Backdoor Roth is the method not the account.
@TheCreditFrog,
I reached the limit for 2024 contributions via backdoor. However my last contributions via traditional IRA gained $.39 before I could convert to ROTH IRA. What are the options to move the (excess) gains from traditonal traditional IRA?
You can also Roth convert that amount, but you'll have to pay ordinary income tax on it. It's not that much since it's only $0.39
But i reached the limit of $7000 without the $0.39. Wouldn't that be excess of the limit for 2024?
@anilfromclt $7,000 is only a contribution limit. If you get interest or capital gains, that doesn’t add to the contribution total
Stan, great video-super helpful!
Quick question about HSA accounts: Is it possible to contribute to an HSA up to the yearly limits without being enrolled in a High Deductible Health Plan (HDHP)?
Thanks! No, you need to have a HDHP to qualify for an HSA.
This is great, thank you so much! I have a question:
When the money is finally transferred to the Roth IRA on fidelity through the backdoor Roth IRA process, do you then transfer the money in the Roth IRA to the mutual/index fund account you want to buy as the last step? for example, invest in FDKLX or AMAGX? because wouldn't the money just sit in the Roth IRA account as cash and therefore not accrue any interest?
You’re welcome! Yes, after doing the backdoor Roth IRA, you need to invest these funds so that they can grow over time.
Hi, what should be the core position in ROTH IRA account after the conversion?
Doesn't really matter! You should be investing the funds so it can grow over time!
Question. My wife has some money in her Traditional IRA from about 2 years ago which was due to overcontribution to her ROTH IRA for that year (partial allowance since she her income was partially in the middle). She is making over the allowed limit and is now able to do backdoor ROTH conversion.
How do we manage those current funds in her traditional IRA prior to the backdoor ROTH conversion?
You would have to Roth convert the entire amount in the Trad IRA to do the backdoor Roth properly. Having said that, this may trigger a huge tax bill so if that’s your situation, I recommend speaking to a financial professional to discuss your options.
Is it okay to use my Individual brokerage account as the transit station for my 7,000 contribution to settle before heading to my traditional IRA then Roth? Instead of a CMA.
Yes, the money can come from a brokerage. It should probably be in cash holdings when transferred.
@@TheCreditFrog Yes it would not be invested, only held as available Cash in the Brokerage account and transferred when settled. Sound good?
@spencermiles129 yeah, that should be fine
Im very confused. I have a rollover ira from old 401ks. I now make too much to contribute to a Roth directly. Do i need to move over all of my funds to a roth to convert? Do i need to open a separate IRA for these post tax contributions and then backdoor it? Ugh. Its so complicated.
Hi. So the best way to go about this is to roll your Rollover IRA into your new 401k (if possible). If not, yes, you would have to Roth convert those funds so your Rollover IRA has $0 by Dec 31st. But by doing so, this will trigger a taxable event and those Roth converted funds will be subject to your ordinary income tax. Depending on the amount in that Rollover IRA, I recommend speaking to a financial professional to see the best option to go about doing this, for example, a Roth conversion ladder, if you would like to do a backdoor Roth IRA.
Hi, I’m starting on these … by mistake a opened a second ROTH IRA on fidelity, is that a problem? How do I delete the second one ? Help please. Thank you
Hi Nuris, no it shouldn’t be a problem. I would call Fidelity and just ask them the close the extra Roth IRA as you opened it by mistake!
I am back with more question. I have a Roth IRA with Fidelity that I opened last year and I contributed 6500 maximum amount. (For the first time; I never had IRA account previously). I am wanting to do the backdoor conversion for this year because last year was the only year I was eligible for Roth IRA due to my income. So when I do the conversion this year, I'll open a traditional IRA account first, but do I need to open a separate Roth IRA account (different from the Roth I opened last year)? or can I transfer money from my new traditional IRA to the last year's Roth IRA account?
Yeah, so for this year, you can use the same Roth as last year! All you have to do is open up the Trad IRA and Roth convert into your Roth IRA!
Stan, You are the BEST!. I just want to be clear I understand. The ONLY way NOT to pay taxes on "Back Door Roth IRA deposit" is only if that person does NOT HAVE ANY IRA with monies in IRA in their name? So, if I contributed to a IRA in years past, I would NOT qualify and have to pay takes on the ROTH IRA contribution for the year it was deposited(with the exemption of Inherited IRA)?
You're welcome Mike! The short answer to your question is yes, you would pay taxes (possibly a lot of taxes) if you have money in another IRA.
For sure, you'd want to consult a financial or tax professional for your situation, but if you have any IRA (exception Roth or Inherited) with money in it, I do not recommend doing a backdoor Roth IRA because the accounting gets pretty awful due to the pro rata rule. It can be done under the guidance of a CPA in certain situations advantageously, but that is beyond the scope of what I understand.
What if your Traditional IRA accumulates a couple of cents during the less than 1 day the money sits in that account before it is transferred to the Roth IRA?
It’s unavoidable. You would Roth convert everything and pay ordinary income tax on the couple of cents you accrued from your contributions.
@@TheCreditFrog thanks for the explanation, mine sat for a yr and now deciding to convert :( but it’s best to convert now and only pay income tax on what I accrued before it increases even more.
@John-rb7zo yup! You need to do the math to make sure it’s not too much tax, but generally speaking, earlier is better than later!
@@TheCreditFrog thanks again. any input on the 529 plan?
@@John-rb7zo Sorry, not as familiar with 529s!
Thank you for the video. Is it the same process with the HSA transfer?
HSA transfer is easy. Just deposit directly!
@TheCreditFrog - is it mandatory to have the CMA account with $0 rest of the year? Or can we have more than $10k funds in the account through out the year and transfer $7000 from it to Traditional IRA by December? Please advise.
You can have the CMA account with whatever amount you want throughout the year! It’s just like having a bank account, but within Fidelity to transfer to your Trad IRA.
I prefer to make monthly contributions. Is there any difference between doing a monthly conversion from traditional IRA to Roth IRA and then invest each month, or make a single max conversion to the roth IRA at the beginning of the year, and then invest a portion each month?
Also, what do with the gained interest on the money held in the Traditional IRA before conversion? For example, lets say i contribute $500 to the traditional IRA and by the time I wait for it to clear, it earned 1$ in interest. Can I then convert $501 without taxes/penalty to Roth IRA, or only the $500 that was originally contributed?
Thank you for the video!
There's no difference except you have to do that 12 times instead of once, which can be annoying to keep track of. In terms of the gained interest, you can Roth convert it, knowing that you'll pay ordinary income tax on it, but since it's a small amount, it's usually a negligible amount anyways.
instead of transferring the money to a cash management account first, can you transfer to a brokerage account instead, then transfer into the IRA? I don't have a cash management account but I do have a brokerage account, and I wasn't sure if I needed to open another account (cash management account)
Yes! You can transfer money from your existing bank to the Trad IRA no problem!
Would appreciate some help. I followed the steps exactly, but looks like the short time money was in my traditional IRA was enough to generate $2.87 in interest and $0.89 dividend. I now have a balance of $3.76 in my traditional IRA. What do I do with this? Transfer it out so I have a $0 balance?
Hi Sara. Yes, Roth convert that money as well. You’ll have to pay ordinary income tax on that conversion but $2.87 won’t be a huge problem. The important thing is to have $0 by Dec 31st
Thank you so much!
@@TheCreditFrogThank you so much!
Does your TIRA start earning interest automatically and immediately? How do we avoid pro-rata? do we just convert/move the TIRA to RIRA same day it clears?
Yes it accrues the moment you put it in. Ideally, it is Roth converted ASAP, but if there’s a banking hold, a few days may be unaboidable. You just have to Roth convert the extra and pay taxes on that amount.
I had rolled over my old employer 401k to my own rollover IRA account as I was asked to move my 401k from them. Does this make me ineligible to open traditional IRA account and do back door Roth. Thank you!!
Yes, at this point you’d have to Roth convert those funds, but that would generate a large tax bill. If you want to do a backdoor Roth IRA, I would ask a financial planner for your best options, which may include a Roth conversion ladder.
Is the fidelity cash management account deposit step necessary to make this work? Or can I just deposit money from my bank account into the Traditional IRA then convert the funds to the Roth account?
You can just deposit money from your bank account