I'm above the income limit in 2024 for contributing directly into a Roth IRA

I used to use a financial advisor to do this but I've moved everything over to Fidelity as people have told me it's not a big deal to do it yourself.

I called Fidelity and it was basically just:

1. Transfer $7k into my Fidelity account
2. Transfer the $7k into the traditional IRA
3. Transfer the $7k into the Roth IRA

I've already done that and now I'm thinking surely I did something wrong as that took all of 5 minutes. Is there something I missed here and just don't know it?

Nope. I use Fidelity. And it's that simple.

I usually let it stay a day in the Traditional IRA before I convert. That way the conversion isn't the same day.

Fins Up! said:

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Nope. I use Fidelity. And it's that simple.

I usually let it stay a day in the Traditional IRA before I convert. That way the conversion isn't the same day.

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Oh dang should I have done that? The guy on the phone said it should take a day for the funds to settle but when I saw it was available immediately I just went ahead and moved it to the Roth.

Figured it wouldn't let me do it if that was a problem

How am I the only one that doesn't have a a big pro rata rule issue preventing a back door roth? And no way do I want to transfer those assets under the management of my 401k administrator and their big fees.

Thanks for the replies guys

Make sure you go back and check at the beginning of the next month after your conversion to see if you received a divided. The backdoor money is usually only in the Traditional IRA a day or less, but there is usually some <$1 divided paid at the end of the month. Make sure you roll that over as well. This year it came out to $0.77 for us (SPAXX).

We just decided to eat the pro rata / tax cost and moved my wifes $2X,XXX in pre-tax IRAs to Roth so we could do back door without having to worry about pro rata ever again.

In your case, you might check if a mega-backdoor Roth is an option.

I've got a 4xx,xxx "problem", no way I'm taking that hit. Unfortunately, my 401k doesn't allow for MBDR.

I used to be a RIA/FA. When it first came into vogue to do back door Roth contributions, my firm was upity about it. At first, they only allowed them in separate years (I.e: Traditional contribution on 12/31, conversion on 1/2). No one does that anymore, and that guidance didn't age well.

I just leave it in overnight for good measure now, so the funds settle.

Back when I didn't have any money, and wasn't making much, I did a Roth conversion on all my Traditional IRA $$. Now that my tax deferred balance is large, it is all in a 401k environment. And my plan does not allow for mega backdoor Roth conversions, unfortunately. I'd probably be the only one wanting to do one anyway.

I just got lucky.

Do you have to file these? Vanguard hasn't been sending me anything the last 2 years.

No. They are just FYI. So both you and the IRS have a record of what you did.

I don't believe you have to file the Roth IRA contribution if it is a direct contribution (I never did). However, if you do the backdoor and pass it through an IRA, you should file that on your taxes. There are pages/instructions in TurboTax to do it correctly. Basically, you report the !RA contribution (which TurboTax does not think is tax-free), and then your report the Roth conversion, which removes your tax obligation. You can see your tax and/or refund owed numbers change as you do it in the system.

You get a 1099R if you do the backdoor, and TurboTax has a section in income for inputting those. The IRS very clearly expects you to report them.

You also get a 1099R if you do the mega backdoor Roth through your 401k.

Yes. And I have my Forms 1099R from Fidelity, but the Forms 5498 won't be ready until May. My tax advisor says as long as I can "prove" the conversion though account activity, then I'm good.

I used to stress out about this also. But this is the 5th or 6th year now that I've done it, and it's a piece of cake.

Correct...5498 doesn't have to be reported. 1099R does - which sort of explains the difference in when you receive them.

This is the guide I use to report the Backdoor Roth IRA conversion in TurboTax Desktop software. It has worked well for me the last few years.

https://thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html

The bulk of my retirement savings are in pre-tax qualified 401K (1 acct) and/or IRA's (3 separate IRA's - 1 for the wife and 2 for me). We are both still working and probably will continue to work for the next 4 years, until retirement.

The 401K is with Fidelity and my understanding is that they do allow MBDR conversions. The larger of the 3 IRA's is with Schwab and the 2 other IRA's are with Empower. I'm not sure if the Schwab or Empower allow the MBDR conversions.

Is there some Roth conversion tool that can be used to help evaluate the difference between leaving as is or converting all or some part to a Roth? I know that assumptions about future tax rates would need to be made, but really would like to know if this could possibly make a significant improvement or not.

I've encouraged my kids to put their retirement savings into Roth - they've got many years of growth ahead of them, and they don't make so much money that they need the tax break now. I'm just not sure if it makes sense for me - only 4 years out from retirement to do the conversions. We'll be in the 24% tax bracket for 2024 and probably the same until retirement.

So just to clarify, the mega backdoor Roth contributions we are talking about are in addition to pre-tax 401k contributions.

The bulk of my 401k balance is pre-tax. The mega backdoor doesn't change that. I'm not converting previously made contributions (that's a whole different thing).

About 2 years ago, I started putting after tax contributions (above and beyond the $23k pre-tax limit) into my 401k. It is only those after tax contributions that get converted via the mega backdoor Roth.

The advantage to doing this is, if you just put extra after-tax contributions into your 401k (not a Roth 401k), you will still (eventually) be taxed on the gains.

With the Roth, the gains are tax free. That's why it's important to not just start making after-tax contributions to your 401k expecting them to automatically be converted to Roth. You have to specifically ask your plan administrator to do this (and your employer has to allow it).

My retirement savings is now a mix of pre-tax contributions and after-tax contributions. Right now, that total ratio is low (because I was only doing pre-tax for a long time).

But on a monthly basis, my current contributions are about 2:1 pre-tax vs after tax (pre-tax max plus about $12k after tax that goes to a Roth).

I'm not willing to give up the tax break for the pre-tax 401k contributions. That's been very beneficial to me for most of my career. I had to work my way up to being comfortable with contributing more than the max to an account that I can't really access until I'm ready to retire.

OK - so Mega Backdoor Roth has nothing to do with converting existing pre-tax accounts from traditional to Roth.

I'm seeing on Forbes website that the 2024 mega backdoor Roth contribution limit is $76,500 (if over 50), but the pre-tax limit is $30,500 (if over 50). This goes up to $77,500 and an additional $3,750 "super catch-up" for individuals between 60 and 63 (me) in 2025. I believe this limit also includes any company match.

Do I have to max out the 401k pre-tax contribution before I can put money in the Roth, or can I put it all in the Roth? I may want to do both to avoid some taxes however.

I have some after tax savings (probably about 30% of the savings is earnings that would be taxable if withdrawn) that I could use to live on and then max out my 401k Roth contributions to the full $81,250. So in essence, I'm converting existing after tax savings to a Roth. Is this more or less how a MBDR works?

Yes, mega backdoor Roth contributions are above and beyond the $23k pre-tax cap (higher if you are 50+).

You have to max out your pre-tax contributions before you can do MBDR.

The 401k savings options are very generous, especially when you have catch up contributions. I posted in the other thread that no one is getting "retirement rich" with the typical $7k/year Roth. Mega backdoor is where the real savings growth is.

Just keep in mind the 401k total includes your employer contribution. So you can't exceed the cap, including your employer match. Gotta factor that in when figuring out how much to contribute.

I'm still about 10 years from retirement, but I know there are strategies for which funds you tap into (pre-tax or after tax) in order to minimize your overall tax burden. My colleagues were talking about it at lunch yesterday.

The Roth contributions are helpful because you can take out a large lump sum and not owe any taxes, even if you are still pulling full salary and haven't retired, yet. I think what my colleagues were saying is, pull out a lump from the Roth right before retirement, live on that lump sum for a couple of years, and take advantage of the fact that you have "zero income". I think, among other things that helps bridge the gap between early retirement and Medicare eligibility (zero income keeps your health insurance costs down if you use the exchange).

this may be a dumb question but i currently have 10% going into a roth and 2% to a pre-tax. I saw that you could face a penalty for contributing more than 7K per year. would that 10% just max out at 7K and dump into the pre-tax or do i need to adjust my percentages? Or is every retirement account different?

Is it a Roth IRA or a Roth 401k? Since you said you are getting a match it's likely a Roth 401K which has a much higher limits and no income cap for direct contributions.

Are you sure you have to max out the regular contributions before you switch to MBDR?

I switched jobs mid year a few years back so it was near impossible to get the tax differed max since my new employer didn't know how much I had already contributed at the previous job so I just switched to after tax with a Roth in plan conversion and there was no issue.

Edit: google and chatgpt tell me it's up to the plan if they make you max out regular contributions before doing MBDR but there is no law that requires it. The company I work for doesn't require it.

you are correct....i finally got past the chatbot and talked to a human and they confirmed 23,500

The 23,500 is what you can put in and doesn't include the match that 2% they put in for you doesn't count against the 23,500.

permabull said:

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Are you sure you have to max out the regular contributions before you switch to MBDR?

I switched jobs mid year a few years back so it was near impossible to get the tax differed max since my new employer didn't know how much I had already contributed at the previous job so I just switched to after tax with a Roth in plan conversion and there was no issue.

Edit: google and chatgpt tell me it's up to the plan if they make you max out regular contributions before doing MBDR but there is no law that requires it. The company I work for doesn't require it.

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Interesting. I didn't ask that specific question of my plan admin because I was already maxing out my pre-tax contributions and wanted this to be above and beyond.

Why wouldn't your after tax contributions before the $23,500 limit just go to a regular Roth 401k?

Fidelity website matches what you say in that it doesn't state you have to hit the $23,500 limit first.

My 401k is with Fidelity. It allows mega backdoor but it doesn't automatically convert after-tax contributions to Roth. I've read where some plans allow that. Mine does not.

I make regular, catchup, and after-tax contributions monthly and ensure that each category hits the max allowed for the year. I have to call Fidelity to convert the after-tax to Roth. I usually do that once a year toward year end. There are some process steps to manage, but it's fairly painless in the grand scheme of things.

I"m getting close to retirement and downsized my job to get back to Texas, which moves me down into the 24% marginal tax bracket for married. Any remaining room I have to the top of that 24% bracket, I'm also converting pre-tax to Roth while I can. I'm fine paying 24% now to get tax free forever, but stayed away from it when I was in the higher brackets.

This is a 3 month old WSJ article:
https://www.wsj.com/personal-finance/taxes/roth-ira-conversion-faq-2ed46145?st=XsuhUn&reflink=desktopwebshare_permalink

My after tax contributions weren't automatically converted to a mega backdoor Roth. Had I just made them and not called Fidelity, they just would have gone into my regular 401k.

However, I only had to do a one-time call. Once I did the initial set up, all of my after-tax contributions are automatically converted, and I don't have to do any additional follow-up. I can also adjust the contribution percentage online, and it all converts.

But, since I am maxing out my pre-tax contributions, there is no option other than this. So maybe that simplifies things for Fidelity?

1099-R question

I did a Roth conversion in 2024 at Fidelity. My situation is pro rata but that is not reflected in the 1099 as the taxable amount is the same as the rollover amount. How is that resolved when filing?

Just to follow up on this. Several wealth management/financial websites make reference to mega backdoor Roth contributions being in addition to the $23,500 limit.

The Motley Fool, Nerd Wallet, and Forbes sites all state you must have saved the pre-tax max before you can MBDR.

The Motley Fool website say you also have to earn more than $165k ($246k if you are filing jointly). That's the first I've seen about that specific equipment.

Definitely points to clarify if you are looking into this alternative.

Alr3111 said:

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1099-R question

I did a Roth conversion in 2024 at Fidelity. My situation is pro rata but that is not reflected in the 1099 as the taxable amount is the same as the rollover amount. How is that resolved when filing?

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Did you get a second 1099-R from your other IRA (assuming that's why you are pro rata)? If so, when you enter both 1099-Rs in Turbo Tax, it will effectively combine them into one and adjust your refund/owe accordingly.

It's been a couple of years, but I think that's how it worked for me when I had this issue.

Do they say you have to max it out or that it's an additional option after you have maxed it out. I can't find any law that has any of these requirements, especially the income requirement. I can into a lump sum of money a few years ago and set my withholdings at work to 50% to siphon it into a Roth and I was well below those income numbers.