Backdoor roth

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Topic Author
sunnysunshine
Posts: 5
Joined: Tue May 11, 2021 7:11 am

Backdoor roth

Post by sunnysunshine »

I recently discovered this thing called backdoor Roth and want to know if it can apply to my situation.

I have about 30k in cash that I have saved and right now its sitting in savings earning nothing. I have several zero% interest credit cards with no balance in case I need money for an emergency.
I want to put that 30K into a Roth IRA and need your help to accomplish this.

two 401ks one from former employer and one from current
two rollover IRA and one traditional IRA

Steps for backdoor ROTH as I understand it.
1. move all pretax money from traditional IRA and rollover IRA into a 401k of former employer.
How do I do this ? What are the consequences of doing this ? Any negative consequences ?
My traditional vanguard and rollover IRAs are with fidelity and TDA and vanguard.

2. Once I have no pretax money in any of my IRAs', I can ask for a conversion of my POST tax money into ROTH.

So how do I get my 30k into my backdoor ROTH ?
mhalley
Posts: 9106
Joined: Tue Nov 20, 2007 6:02 am

Re: Backdoor roth

Post by mhalley »

Former employers generally will not accept ira rollovers, only current employers will allow that. If done properly, no negative consequences. Contact hr and they should be able to tell you how to do the rollover.
To get the 30k into the backdoor Roth, you contribute the yearly amount (6k for u and 6k for spouse or 7k if over 50) each year going forward unless they change the tax rules.
https://www.whitecoatinvestor.com/backd ... -tutorial/
tashnewbie
Posts: 2027
Joined: Thu Apr 23, 2020 12:44 pm

Re: Backdoor roth

Post by tashnewbie »

1. You can't convert $30k that you have outside of an IRA into a Roth IRA. You can only contribute $6k/$7k (if >=50 years old) per year into a Traditional or Roth IRA or a combination. It's generally not recommended to convert pretax balances in IRAs while you're still working and earning income (because presumably you'd be in lower tax brackets after you stop working).

2. Your former employer probably won't accept an incoming rollover of any funds, because you no longer work there.

3. Your current employer probably would accept an incoming rollover of the Rollover IRAs and Traditional IRA (assuming there are no post-tax funds in any of those).

4. Do you have good fund options with low fees in the current 401k?
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KingRiggs
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Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: Backdoor roth

Post by KingRiggs »

Do you even need to use the "backdoor" method to make a Roth IRA contribution? ie, is your income under the limit for making a deductible IRA contribution?

See this:

https://www.schwab.com/ira/roth-ira/con ... tax%20year
Advice = noun | Advise = verb | | Roth, not ROTH | | "Remember, there's always money in the banana stand." - George Bluth, Sr.
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Eagle33
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Joined: Wed Aug 30, 2017 3:20 pm

Re: Backdoor roth

Post by Eagle33 »

Your current 401k may allow after-tax contributions that can then be converted to Roth. Read about Mega-backdoor Roth in the wiki. You would need to fund the 401k after-tax from your paycheck and use the $30k from your taxable account to replace the reduced take home pay.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
joverby
Posts: 69
Joined: Sat Sep 18, 2021 7:14 pm

Re: Backdoor roth

Post by joverby »

sunnysunshine wrote: Tue Oct 12, 2021 9:05 pm
I have about 30k in cash that I have saved and right now its sitting in savings earning nothing. I have several zero% interest credit cards with no balance in case I need money for an emergency.
A credit card is not the same as an emergency fund, because it must be paid back. If that 30k is your emergency fund then leave it be. It’s purpose is to protect you and your financial future by allowing you to deal with future emergencies from a position of strength.
placeholder
Posts: 5036
Joined: Tue Aug 06, 2013 12:43 pm

Re: Backdoor roth

Post by placeholder »

It's important to understand that backdoor roth isn't some extra account you can add it's just a method for making a regular contribution to an ira then converting it to roth without much in the way of taxes due so if you already made a full contribution to a roth ira then you're done.
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sarabayo
Posts: 470
Joined: Fri Jun 29, 2018 6:59 pm

Re: Backdoor roth

Post by sarabayo »

sunnysunshine wrote: Tue Oct 12, 2021 9:05 pm I recently discovered this thing called backdoor Roth and want to know if it can apply to my situation.

I have about 30k in cash that I have saved and right now its sitting in savings earning nothing. I have several zero% interest credit cards with no balance in case I need money for an emergency.
I want to put that 30K into a Roth IRA and need your help to accomplish this.

two 401ks one from former employer and one from current
two rollover IRA and one traditional IRA

Steps for backdoor ROTH as I understand it.
1. move all pretax money from traditional IRA and rollover IRA into a 401k of former employer.
How do I do this ? What are the consequences of doing this ? Any negative consequences ?
My traditional vanguard and rollover IRAs are with fidelity and TDA and vanguard.

2. Once I have no pretax money in any of my IRAs', I can ask for a conversion of my POST tax money into ROTH.

So how do I get my 30k into my backdoor ROTH ?
FYI, Roth is the name of a former US senator, Wiliam Roth. It's not an acronym so there's no need to write it as "ROTH".
Topic Author
sunnysunshine
Posts: 5
Joined: Tue May 11, 2021 7:11 am

Re: Backdoor roth

Post by sunnysunshine »

Eagle33 wrote: Wed Oct 13, 2021 2:52 pm Your current 401k may allow after-tax contributions that can then be converted to Roth. Read about Mega-backdoor Roth in the wiki. You would need to fund the 401k after-tax from your paycheck and use the $30k from your taxable account to replace the reduced take home pay.
Thanks this sounds about what I need to do.
My income is at the point of where my ira contribution deductions are getting phased out.

So this plan will work ?
1. If my 401k will accept it, move all pretax fund from my ira into it.
2. Make maximum 401k contribution for pretax (19k) and add extra contribution to 401k after tax till 30k.
3. Live off the 30k I have in savings.
4. When I am done adding 30k to my after 401k, revert to getting normal pay
5. Convert after tax money in ira into Roth, effectively due to step 1 and step 5, my traditional ira will not have any money. It will be in 401k anc Roth
6. 401k after tax will have money I can roll over to Roth it’s ?
Misenplace
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Joined: Mon Feb 01, 2016 9:46 pm

Re: Backdoor roth

Post by Misenplace »

sunnysunshine wrote: Sat Oct 16, 2021 4:59 pm So this plan will work ?
1. If my 401k will accept it, move all pretax fund from my ira into it.
2. Make maximum 401k contribution for pretax (19k) and add extra contribution to 401k after tax till 30k.
3. Live off the 30k I have in savings.
4. When I am done adding 30k to my after 401k, revert to getting normal pay
5. Convert after tax money in ira into Roth, effectively due to step 1 and step 5, my traditional ira will not have any money. It will be in 401k anc Roth
6. 401k after tax will have money I can roll over to Roth it’s ?
At a minimum, do step #1 if your 401(k) accepts rollovers.
Then, you need to check whether your 401(k) allows a Mega-backdoor Roth - many don't. Even if they do, you will need to understand and follow the rules for your particular plan.
Not sure what you mean by your step #5, unless you are referring to also doing the typical Backdoor Roth at the same time, which you could. https://www.bogleheads.org/wiki/Backdoor_Roth . Eagle33 provided the link to the wiki entry on the Mega Backdoor Roth. Make sure you read the Wiki and understand both types of processes before proceeding.
I had a 401(k) plan that did not allow me to roll out the Roth portion - I had to keep it all in the 401(k). It was annoying because I couldn't make the Roth portion heavier in equities- it had to all be the same as the pre-tax 401(k). Wish I had paid better attention.

You can always fall back on doing the typical backdoor Roth over a couple of years, and meanwhile invest in a taxable account. If you are married then you can do one for your spouse and get it into Roth accounts that much quicker.
retiredjg
Posts: 45698
Joined: Thu Jan 10, 2008 12:56 pm

Re: Backdoor roth

Post by retiredjg »

So this plan will work ?
1. If my 401k will accept it, move all pretax fund from my ira into it.
2. Make maximum 401k contribution for pretax (19k) and add extra contribution to 401k after tax till 30k.
3. Live off the 30k I have in savings.
4. When I am done adding 30k to my after 401k, revert to getting normal pay
5. Convert after tax money in ira into Roth, effectively due to step 1 and step 5, my traditional ira will not have any money. It will be in 401k anc Roth
6. 401k after tax will have money I can roll over to Roth it’s ?
Step 2 can only be done in some 401k plans. And even if your plan allows it, you may not be able to contribute $30k in one year.

Before going further, find out if your plan allows after-tax contributions (not the same thing as Roth 401k contributions). If yes, how much?
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