How to do a Backdoor Roth IRA

If you are above the income limits to contribute to a Roth IRA, you can still contribute through a method called the Backdoor Roth IRA. You are taking advantage of the fact that there is no income limit to contribute to a Traditional IRA (although there is a limit to get the up front tax deduction) and the fact that you can convert Traditional IRA funds into a Roth IRA.
Since the Traditional IRA contributions where non-deductible (aka taxes were paid), there is no extra taxes to pay on the conversion.
One big thing to keep in mind:
The Pro-Rata Rule is used to determine how the conversion from Traditional to Roth should be taxed. If 100% of your Traditional IRA money is after-tax (non-deductible), then 100% can be converted tax-free. However, if you have other pre-tax (deductible) contributions in an IRA, the percentage of those accounts that are pre-tax would be taxed on the conversion.
Therefore, you must make sure you have no pre-tax money in an IRA (Traditional, SEP, or Simple IRAs). If you do, consider first moving that money into a Traditional 401k before doing the backdoor conversion.
#money #finance #ira #personalfinance #financialeducation #rothconversion #rothira #rothiraexplained #backdoorrothira #financialliteracy

[@FiveMinuteFinance]

Learn more about IRA's: ruclips.net/video/snQOdY8aeuw/видео.html

[@hteadx]

What happens if you have a rollover IRA and you want to do a backdoor roth?

[@babban2312]

Last year 2023, I deposited $6.5k in my traditional IRA and converted backdoor into RothIRA , however after conversion I came to know the traditional IRA earned 1c in the account. Right now my Traditional IRA has 1c balance.
My question is: For the current year should I transfer $6999.99 to Traditional IRA and move the total balance ($6999.99 + .01 = $7k ) to RothIRA or I should keep that 1 cent untouched in Traditional IRA and fund additional $7k in Traditional IRA and then covert $7k it to Roth.
Will I have any penalty situation here either way?

[@enverdadlodicedesdecero2817]

One ? Please give light here you said no invest yet and after said next convert the money invest before convert or not.

[@badazzcanbe]

This confused me as well

[@areebebrahim39]

You would add the money to the traditional IRA without putting that money into any investments (the IRA will just hold the money, kind of like a bank account, until you invest, so just don’t invest). Then, convert to Roth IRA (after conversion, it’ll still just hold your money). Then, you invest (after conversion, you invest it so now it’s not just going to hold your money like a bank account does, instead you’re investing it). Hope this helps.

[@abbyboyone]

​@@areebebrahim39 does one repeat this process every year?

[@Mykidwatchesyoutube]

And pay taxes on the conversion

[@skynet000001]

exactly

[@pamelacaro8556]

Can I make the maximum contribution for the year in a lump sum and convert it to a ROTH the next day for example? So as not to pay tax on the growth over the course of the year

[@legonut78]

Watch the video again. The idea is, you already paid tax on this money, and did not take the deduction when contributing. Thus it’s post tax money and not taxed again. (You will have to tell the IRS that you made a post tax ira contribution)
The problem is, if you already own ANY pre tax IRAs, I think they mess this up. Maybe an expert can clarify for us.