Backdoor roth question

[dhara]

Hello, Planning on contributing to Roth IR via backdoor. I have pre-tax ~ 13k in traditional IRA. Employer 401 k does not allow rollover from traditional IRA. We are in 24% tax bracket. Should I convert to Roth and pay taxes on 13k? It may end up putting us in 32% tax bracket. Or just leave it in traditional. And, leave the additional $6500 in traditional?
A total newbie here.

[livesoft]

You can contribute to a non-deductible traditional IRA and then decide how much of your total traditional IRA to convert to a Roth IRA. That way, you can "dial in" exactly the amount of additional income you will be taxed on and thus avoid bumping up into another tax bracket. You can simulate all this for tax year 2023 by using your desktop tax-prep software that you used for your 2022 tax return. It will probably turn out that you will do conversions over a few years and not all at once.

Of course, you can convert some of what you have in 2022 without making any contribution in 2022. You will still be able to make a 2022 non-deductible traditional IRA contribution in early 2023 if you want.

[retiredjg]

Welcome to the forum.

What about leaving it it where it is until you change jobs and have a 401k that will accept it. In the meantime, do not contribute to tIRA. Put that money in a taxable account which is not a great as Roth but certainly good enough.

Your spouse can go ahead with the backdoor Roth if spouse has no tIRA.

Lots of people are doing the backdoor Roth, but I'm not convinced it is important enough to convert an extra $13k to Roth at 24% to get there.

[dhara]

Ok, got it. I was thinking of converting all at once to avoid the pro-rate rule. But then spreading across few years would be more advisable. Thanks for your response.

[mhalley]

Another option is to make some money at a side gig, create a solo 401k and transfer the ira there. Instacart or Lyft type service would be easy.

[livesoft]

... to avoid the pro-rate rule....

For whatever reasons I see that many people seem to hate arithmetic performed by their tax-prep software. I don't get it, buta lot of my jobs growing up were all about math. so I have no math anxiety at all.

Maybe as children people got snookered into exchanging a dime for a nickel. After all, a nickel is bigger and heavier than a dime, so a nickel must be worth more than a dime!

[retiredjg]

... to avoid the pro-rate rule....

For whatever reasons I see that many people seem to hate arithmetic performed by their tax-prep software.

Maybe it is not the arithmetic. Maybe it is the tax rate.

Converting $13k at 24% is not a drop in the bucket to everyone. For someone who will get years and years of backdoor Roth after paying for that, it might be worth it. For others, it might not be worth it. If it is worth it, why not just do it all in one year or split into only two?

In this particular case, I think it is worth seeing if another job with a different 401k comes along in the next couple of years. If yes, do the reverse rollover and start using backdoor Roth at that time. In the meantime, invest in taxable (a good place) or pay off debt (a good thing).

But I do agree with you that many people just don't want to deal with the arithmetic.

[livesoft]

Converting $13k at 24% is not a drop in the bucket to everyone. For someone who will get years and years of backdoor Roth after paying for that, it might be worth it. For others, it might not be worth it. If it is worth it, why not just do it all in one year or split into only two?

I think I understood that the OP might be at the top of the 24% tax bracket already, so converting all $13K would push them into a tax place they do not have to be if they convert say hypothetically $7000 in December 2023 and $6000 in January 2024. I just don't know.

[retiredjg]

Converting $13k at 24% is not a drop in the bucket to everyone. For someone who will get years and years of backdoor Roth after paying for that, it might be worth it. For others, it might not be worth it. If it is worth it, why not just do it all in one year or split into only two?

I think I understood that the OP might be at the top of the 24% tax bracket already, so converting all $13K would push them into a tax place they do not have to be if they convert say hypothetically $7000 in December 2023 and $6000 in January 2024. I just don't know.

You are right that there is too much unknown. And converting at 32% would be really dumb, in my opinion anyway.

Splitting into 2 years, especially this late in the year, is not unreasonable if it is determined to be worth it to convert at 24%.

I still recommend waiting for a different 401k unless that is not likely to happen.