🌟 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.
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!
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
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
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 🤩!
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!
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 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!
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!
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!
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!
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!
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!
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!
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"
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.
@@huy3967 Great suggestion! That technique is a little more complicated with a lot more moving parts so that is something that I need to do a lot more research on!
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.
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 👍!
When I spoke to Fidelity they suggested to wire the money to them instead of pulling from a checking/savings account. This way the funds clear much quicker
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!
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.
From everything I’ve read, it made it seem like you need to “convert” a traditional account to a Roth so had me stumped on how you could do this year after year unless opening a new account each time. This made it clear you open two accounts and the conversation is just the transfer from tradition to Roth. Hence going through the back door! Duh! I also read this method could be going away after 2023 😩 thanks, again!
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 RUclips 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.
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.
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!
@@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 👍!
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 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 this video! It's been really useful to me. I'm at the point where I've changed my core position from SPAXX to FDIC in my Traditional IRA, and I'm ready to do the conversion to my ROTH IRA. I noticed that the Traditional IRA now has an extra $1.85 in it that came from dividends before changing the core position. Is it still OK to transfer the full $6500 to my ROTH IRA if $1.85 will be left over in the Traditional IRA account? These are the only two IRA accounts I have.
No problem Bryce! Glad it brought you a lot of value. Yeah, so no matter what the core position is in, there will be some interest gained before you can do the Roth conversion. As long as you have no other assets in other relevant IRAs like I mentioned in the video, if you Roth convert all the funds ($6,001.85), you will have to pay ordinary income tax on that $1.85, which is not the biggest deal, but you would be ok with the rest of the funds. The most important thing is to ensure the Traditional IRA has $0 by Dec 31st so that the pro rata rule would not apply when you do your 2023 taxes.
@@TheCreditFrog Got it! Glad I asked, I'll make sure to convert all $6,501.85 to the ROTH IRA so that there are no funds in the Traditional IRA. Thankfully I also have a CPA to help me with the tax side of things. Thanks for your help! Looking forward to seeing your channel grow😁
What if Fidelity posts the interest on January 1st with posted date on December 31st ? I heard SPAXX pay interest at the end of the month. Will this be a problem ?
Great video Stan! Btw, I’m able to do the conversion with the core position of SPAXX with no problem. Do you have anymore information about why this wouldn’t work for you?
Thanks Justin! Oh, that's great to hear! When I started doing a backdoor Roth, maybe a few years ago now, I was unable to do a Roth conversion for weeks (kept throwing an error at the final screen), and I couldn't figure out what was wrong. I eventually converted my core position to FDIC, and it worked then so I figured that maybe SPAXX wasn't transferrable between IRAs or something. It's great to hear that SPAXX is able to convert without issues now!
Thank you so much, excellent video! One question, I called fidelity this week and they told me they don't offer mega back door IRA contributions. Is this different? Do you use another company to hold the plan to allow for this? Thanks!
Thanks! Regarding mega Backdoor Roths, this is something that will be done using your 401k provider more than it would with your Roth IRA provider. You’ll need to see if your 401k provider offers in-service distributions and some other things. These can get very technical so I recommend you do this along with a financial professional because there are a lot of moving parts, and you don’t want to miss something!
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
Thank you for a wonderful video, very well explained. Could you help with my question . I did a monthly contribution to my ROTH IRA but at the end of the year I found myself not qualified since my income had exceeded the ROTH limit. I plan to recharacterize that to traditional ROTH but what would I do with my growth ?
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 ?
Can you comment on the part where IRA fund can’t be invested before transferring to Roth? I have an existing IRA account with stocks and funds. When I transfer the $7000 from cash to IRA, it gets mixed in one account. Does it suffice as long as I don’t make any investments between transfer in and out (to Roth).
The original transfer of $7,000 is not the concern here. If you have existing Trad IRA investments, this will trigger a taxable event when you do the Roth conversion of the whole account. I recommend speaking to a financial professional for more information.
Thanks Stan, this is really helpful. I used your step by step info and just finished contribution for 2022. One thing I wanted to check. What shall be the core position after money is transferred to Roth? Should it be FDIC or SPAX?
Glad this video helped! It shouldn’t matter in the Roth because the money should be invested elsewhere after it gets in the Roth. FDIC and SPAXX are just places to hold your cash before it gets invested elsewhere!
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?
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 man! Yeah, it's a pretty simple process and hopefully this video made it more clear to set up. I know it varies between banks, but the main concepts are there. Glad you enjoyed it!
Hello, great video! I do have a question though. Could I skip the deposit into the cash management account and deposit the 6.5k directly into the traditional ira before the conversion?
Thanks for the video! What if the money shows up in the traditional IRA on the left hand side but it is not present under positions? DO I need to wait longer until it appears in the positions before transferring to Roth IRA?
I don’t think it matters, but I personally wait for the money to clear (is present under positions) before doing the Roth conversion. That way, there’s been some record the money was in the Roth first, but I could just be overanalyzing it.
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?
Hi Tara! Yes, if you have a rollover, you probably shouldn’t do this since it will generate tax. It’s possible, but better to have a CPA guide you through this to see what your options are.
Thanks for a great video but during the time money sit in the traditional IRA, it will generate interest. How do I suppose to do with the interest in the account? Thanks
🌟 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.
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👍!
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!
Probably the best walkthrough I have watched! Thank you!
You’re welcome! Glad you found the video helpful!
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 👍!
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!
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!
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!
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!
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!
Best training after watching 20 others. Thanks!
You're welcome! Glad you found it helpful!
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!
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!
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!
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!
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!
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!
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!
Best video explanation on backdoor roth conversion!
Thank you! I'm glad you found it helpful!
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?
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!
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!
Great video. Thanks for the clear explanation of step by step process.
You’re welcome Sony! Glad you found it helpful!
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!
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!
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!
Subscribed. this is the clearest video on the subject so far.
Thank you! I'm glad you found the video helpful!
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!
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.
so helpful! Thanks for breaking it down step by step
You’re welcome! Happy you found it helpful!
Frickin' AMAZING video. Thank you so much.
Glad you found it helpful, and you're welcome!
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!
Thank you for making this video clear and step by step
No problem. Glad you found it helpful!
Simply, you're the best
I appreciate that, thank you! Glad you found the video helpful!
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!
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 making this step-by-step video. It is super useful!
Of course! Glad you found it to be helpful!
@@TheCreditFrog Perhaps, you could do a video about "Mega backdoor Roth" which I hear people talking about it.
@@huy3967 Great suggestion! That technique is a little more complicated with a lot more moving parts so that is something that I need to do a lot more research on!
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!
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.
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 👍!
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
Subscribed. Great video step by step guide.
Thanks! Glad you found the video helpful!
Thank you. This video was amazing.
You're welcome! 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!
Amazing video - thank you so much for explaining this so clearly.
You're welcome! Glad you found it helpful!
When I spoke to Fidelity they suggested to wire the money to them instead of pulling from a checking/savings account. This way the funds clear much quicker
Definitely could be a good option!
Great video! Easy to understand and follow along. I appreciate you!
Of course! Glad you found it helpful!
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!
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.
Such a good and useful video. Hats off
You're welcome Nate! Glad you found it helpful!
Wonderful explanation!
Also, I love the model ✈️
Thank you! Haha, I appreciate it! ✈️
Fantastic content! Excellent job!
Thank you so much!
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.
Dude, awesome video and answered my questions!
You’re welcome! Glad you found it helpful!
From everything I’ve read, it made it seem like you need to “convert” a traditional account to a Roth so had me stumped on how you could do this year after year unless opening a new account each time. This made it clear you open two accounts and the conversation is just the transfer from tradition to Roth. Hence going through the back door! Duh! I also read this method could be going away after 2023 😩 thanks, again!
@@Floathead Yeah it’s pretty simple! I hope that they don’t get rid of this strategy, but we will have to see!
Thank you so much for this video! It's super helpful.
You’re welcome!
Wow! Great video! Clear and to the point. You earned a sub.
You're welcome! Glad I could help you out, and appreciate the support!
Man’s got that Mao hairline. He gets my vote!
I'll take the vote!
Lovely! Well done
Thank you!
Bro this is awesome
Thank you!
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 RUclips 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.
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.
Learned so much! Thank you!
Of course Justine! You’re welcome!
You are the best! Thank you
You're welcome!
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!
This is so helpful, thank you so much!
You’re welcome! Glad it helped you out 👍!
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 👍!
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 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!
Could you do a follow up video on IRS requirements of a backdoor and a step by step IRS Form 8606?
Sure, I have a video like that already here! ruclips.net/video/Q9V1qz2rJIQ/видео.html
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!
Thank you for this video! It's been really useful to me. I'm at the point where I've changed my core position from SPAXX to FDIC in my Traditional IRA, and I'm ready to do the conversion to my ROTH IRA. I noticed that the Traditional IRA now has an extra $1.85 in it that came from dividends before changing the core position. Is it still OK to transfer the full $6500 to my ROTH IRA if $1.85 will be left over in the Traditional IRA account? These are the only two IRA accounts I have.
No problem Bryce! Glad it brought you a lot of value. Yeah, so no matter what the core position is in, there will be some interest gained before you can do the Roth conversion. As long as you have no other assets in other relevant IRAs like I mentioned in the video, if you Roth convert all the funds ($6,001.85), you will have to pay ordinary income tax on that $1.85, which is not the biggest deal, but you would be ok with the rest of the funds. The most important thing is to ensure the Traditional IRA has $0 by Dec 31st so that the pro rata rule would not apply when you do your 2023 taxes.
@@TheCreditFrog Got it! Glad I asked, I'll make sure to convert all $6,501.85 to the ROTH IRA so that there are no funds in the Traditional IRA. Thankfully I also have a CPA to help me with the tax side of things. Thanks for your help! Looking forward to seeing your channel grow😁
What if Fidelity posts the interest on January 1st with posted date on December 31st ? I heard SPAXX pay interest at the end of the month. Will this be a problem ?
This is great. Really thorough and well done.
Thanks Chris! Glad you found it helpful!
Great video Stan! Btw, I’m able to do the conversion with the core position of SPAXX with no problem. Do you have anymore information about why this wouldn’t work for you?
Thanks Justin! Oh, that's great to hear! When I started doing a backdoor Roth, maybe a few years ago now, I was unable to do a Roth conversion for weeks (kept throwing an error at the final screen), and I couldn't figure out what was wrong. I eventually converted my core position to FDIC, and it worked then so I figured that maybe SPAXX wasn't transferrable between IRAs or something. It's great to hear that SPAXX is able to convert without issues now!
@@TheCreditFrog Same here. SPAXX has been working for me. Thanks for the step by step guide!
@@marg8315 Great to hear it!
Great Video !! Thanks.., I am/was able to convert SPAXX positions from Trad IRA to Roth IRA for last few years
Thanks for back door tip, quick question can you speak on the (Post 86) option in 401k
Sure thing! Unfortunately, I’m not as familiar with the Post 86 option for 401k so I’m not entirely sure.
Thank you so much, excellent video! One question, I called fidelity this week and they told me they don't offer mega back door IRA contributions. Is this different? Do you use another company to hold the plan to allow for this? Thanks!
Thanks! Regarding mega Backdoor Roths, this is something that will be done using your 401k provider more than it would with your Roth IRA provider. You’ll need to see if your 401k provider offers in-service distributions and some other things. These can get very technical so I recommend you do this along with a financial professional because there are a lot of moving parts, and you don’t want to miss something!
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
Thank you - very helpful
You're welcome!
Thank you for a wonderful video, very well explained. Could you help with my question . I did a monthly contribution to my ROTH IRA but at the end of the year I found myself not qualified since my income had exceeded the ROTH limit.
I plan to recharacterize that to traditional ROTH but what would I do with my growth ?
Thanks! I recommend you speak to a CPA or tax professional to see what your options are.
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!
Solid instructions
👍
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
Thanks for the great video. I have my Roth IRA account with a different bank. Can I move fidelities IRA contribution to an external Roth account?
You can, but it is complicated. It’s probably much easier to have the Trad IRA with your other bank and move the funds from there.
@ thank you!
Can you comment on the part where IRA fund can’t be invested before transferring to Roth?
I have an existing IRA account with stocks and funds. When I transfer the $7000 from cash to IRA, it gets mixed in one account. Does it suffice as long as I don’t make any investments between transfer in and out (to Roth).
The original transfer of $7,000 is not the concern here. If you have existing Trad IRA investments, this will trigger a taxable event when you do the Roth conversion of the whole account. I recommend speaking to a financial professional for more information.
this was really good great explanation!
Of course! Glad you found it helpful!
Thanks Stan, this is really helpful. I used your step by step info and just finished contribution for 2022. One thing I wanted to check. What shall be the core position after money is transferred to Roth? Should it be FDIC or SPAX?
Glad this video helped! It shouldn’t matter in the Roth because the money should be invested elsewhere after it gets in the Roth. FDIC and SPAXX are just places to hold your cash before it gets invested elsewhere!
Excellent Video! Do you have any videos on the MegaBackDoor Roth ?
Thanks! No, unfortunately I do not.
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!
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.
Great guide I used to have to do backdoor Roth IRAs when I used to invest in equities. This brought back some memories.
Thanks man! Yeah, it's a pretty simple process and hopefully this video made it more clear to set up. I know it varies between banks, but the main concepts are there. Glad you enjoyed it!
Hello, great video! I do have a question though. Could I skip the deposit into the cash management account and deposit the 6.5k directly into the traditional ira before the conversion?
Thanks! Yes, you can just deposit directly into the Traditional IRA!
Thanks for the video! What if the money shows up in the traditional IRA on the left hand side but it is not present under positions? DO I need to wait longer until it appears in the positions before transferring to Roth IRA?
I don’t think it matters, but I personally wait for the money to clear (is present under positions) before doing the Roth conversion. That way, there’s been some record the money was in the Roth first, but I could just be overanalyzing it.
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.
Thank you for the video. Is it the same process with the HSA transfer?
HSA transfer is easy. Just deposit directly!
Hi and thanks…you mentioned that you can’t have anything in other IRA’s. Am I excluded from being able to do this if I have a rollover IRA?
Hi Tara! Yes, if you have a rollover, you probably shouldn’t do this since it will generate tax. It’s possible, but better to have a CPA guide you through this to see what your options are.
Thanks for a great video but during the time money sit in the traditional IRA, it will generate interest. How do I suppose to do with the interest in the account? Thanks
You will have to Roth convert the interest too! It's just part of the process. You'll pay ordinary income tax on that amount.