Back Door Roth Conversion

1,737 Views | 16 Replies | Last: 3 days ago by infinity ag
CaptnCarl
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8:19p, 2/10/25
AG
I am researching a back door Roth conversion, but am confused about the process.

Both the trad IRA and Roth IRA have AGI limits. How can I contribute to an IRA before the conversion if my AGI exceed the IRA limit?

Does the IRA need to be funded from previous years contributions? This Vanguard article says the IRA should have no balance.

https://investor.vanguard.com/investor-resources-education/article/how-to-set-up-backdoor-ira

Thanks for any input.
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nactownag
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8:29p, 2/10/25
AG
Traditional IRA AGI limit is only for deductibility.
No rule against funding the Trad IRA just can't deduct.

So you fund the Trad IRA, file an 8606 on your return to document that it was a non deductible contribution. When you convert (the same day or next day after the contribution) then you are good to go because you converted after tax dollars and it's not taxable.

The key is you cannot have any pretax Ira funds elsewhere. No sep. no simple. So if you have any pre tax funds they must be in work plan like 401k or 403b or 457 etc. then you are good to go.

Thats what it means when it says your Ira balance needs to be zero.

It's zero before. Then you contribute and convert and it's zero after.
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CaptnCarl
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In reply to nactownag • 9:17p, 2/10/25
AG
Thank you! Very helpful. I do have trad IRA dollars that I rolled over from an old employer 401k. From what I understand you're telling me, I cannot do a rollover because I have a trad IRA balance.
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File5
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In reply to CaptnCarl • 9:27p, 2/10/25
AG
You could but you would be subject to pro rata rule, severely limiting the upside of the conversion. Definitely look that up. You may want to start converting your full Trad IRA depending on your total income, using a Roth ladder. Then once you get your Trade IRA to zero you can do the backdoor with no issue. Also look into Mega Backdoor for another great way to get dollars into your Roth. There are a couple of threads on here about it also.
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TXTransplant
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5:37a, 2/11/25
For the mega backdoor Roth option, ask the administrator of your current 401k if in-plan or in-service distributions are allowed. If so, you can do the mega.

2025 limits for 401k contributions are $70k, combined employee+employer (higher if you are 50+).

If you are maxing out your pre-tax contributions ($23,500), then you can put up to another $46,500 in after tax contributions into your 401k via the mega backdoor. Just be sure you subtract any matching from your employer from that $46,500.
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nactownag
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In reply to CaptnCarl • 6:58a, 2/11/25
AG
That's right.
You have two choices:
1) roll the pre tax funds back into a 401k plan. Maybe your new work has a plan. No tax consequences to this option but now you have less investment choices
2) convert the pre tax money to Roth. You'll pay income taxes on the balance to do this but it will grow tax free from that point forward.

Either of these would result in you having a $0.00 in your Ira. Which would allow you to do backdoor Roth going forward.
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CaptnCarl
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8:23p, 2/11/25
AG
This is great info. I really appreciate the info.
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nactownag
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5:57a, 2/12/25
AG
Happy to help.

If folks want you can reach out to us at www.holisticplanning.com

We offer investments taxes and estate planning in a fee only RIA.

We also have a YouTube with a lot of good info and more coming regularly.

https://youtube.com/@holisticplanning?si=8sAC7PBWVY-9-AzE
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ElGatoBill
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4:15p, 2/12/25
AG
There is another thread on the first page that has some additional details as well.

https://texags.com/forums/57/topics/3526059
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CaptnCarl
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3:11p, 2/13/25
AG
Thanks El Gato. I read the thread. It is helpful, but I'm still digesting.

I believe I either need to pay the income tax and convert to Roth, or try to push the IRA to my current employer 401k.

Does anybody have a tax contact that could help me quantify either option?
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OldArmyCT
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8:30a, 2/14/25
AG
This is in today's WSJ:
https://www.wsj.com/buyside/personal-finance/retirement/backdoor-roth-ira?mod=share_link
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CaptnCarl
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In reply to OldArmyCT • 9:07p, 2/16/25
AG
Thanks for sharing. After my research, I think my best option is transfer my pre tax IRA funds to my current 401k and do the mega back door Roth conversion.
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Petrino1
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In reply to CaptnCarl • 8:36a, 2/17/25
CaptnCarl said:
Thanks for sharing. After my research, I think my best option is transfer my pre tax IRA funds to my current 401k and do the mega back door Roth conversion.


Remember, most 401k plans don't allow for a mega back door Roth IRA. You'll have to ask your 401k provider if they allow for in network conversions and after tax contributions.
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TXTransplant
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In reply to Petrino1 • 9:09a, 2/17/25
Petrino1 said:
CaptnCarl said:
Thanks for sharing. After my research, I think my best option is transfer my pre tax IRA funds to my current 401k and do the mega back door Roth conversion.


Remember, most 401k plans don't allow for a mega back door Roth IRA. You'll have to ask your 401k provider if they allow for in network conversions and after tax contributions.


You may also want to ask how contributions are made. My only option for the mega backdoor is to contribute a percentage of my salary, which Fidelity then converts to Roth. I cannot do a lump sum or roll over funds from another investment account.
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CaptnCarl
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In reply to TXTransplant • 9:32a, 2/17/25
AG
Appreciate the heads up. Mine is through Fidelity so I probably will see the same issue.
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A. G. Pennypacker
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In reply to TXTransplant • 10:46a, 2/17/25
AG
TXTransplant said:
Petrino1 said:
CaptnCarl said:
Thanks for sharing. After my research, I think my best option is transfer my pre tax IRA funds to my current 401k and do the mega back door Roth conversion.


Remember, most 401k plans don't allow for a mega back door Roth IRA. You'll have to ask your 401k provider if they allow for in network conversions and after tax contributions.


You may also want to ask how contributions are made. My only option for the mega backdoor is to contribute a percentage of my salary, which Fidelity then converts to Roth. I cannot do a lump sum or roll over funds from another investment account.
But you can use the money from another (non-qualified / non Roth) investment account to live on (if needed) because you are putting some high percentage (up to $80k if you are 62-65 yrs old - there may be limits on the max % of your salary that you can contribute) of your salary into your employer 401k plan and then rolled to a Roth. Which is, in essence, partially converting the investment account to a Roth.
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infinity ag
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11:11a, 2/17/25
I am looking for a good strategy for BD Conversion too. Please keep the posts coming!
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