12 Things You Must Know About A Backdoor Roth IRA (Including If It's Worth The Hassle)

[@DanielBaleWyatt]

I recently adjusted my Roth IRA to 50% in SCHD, 25% in SCHX, and 25% in SCHG. For my Roth 401k, I went with 70% in Vanguard's S&P 500 Index, 20% in the Vanguard Growth Index, and 10% in the Vanguard International Index. My goal is to grow my $350k to over $1 million within the next three years.

[@Toni__Michelle]

It might be worth considering a financial advisor to avoid constant adjustments. Your selections are strong, especially for a $350k portfolio.

[@FrankJaaay]

I agree-having an advisor manage my investments has been invaluable since my work schedule doesn't allow time for in-depth analysis. Thankfully, my portfolio has grown fivefold in just four years, reaching nearly $1 million today.

[@HotManP-l5g]

@@FrankJaaay That's impressive! Would you mind sharing your advisor's details? I’m in urgent need of rebalancing my portfolio.

[@FrankJaaay]

@@HotManP-l5g Rebecca Lynne Buie has consistently been my top recommendation. She’s widely recognized for her expertise in financial markets and has a strong track record. I highly recommend her.

[@FrankJaaay]

Rebecca Lynne Buie has consistently been my top recommendation. She’s widely recognized for her expertise in financial markets and has a strong track record. I highly recommend her.

[@RamKNarayanan]

Thanks Rob, it is the most eloquent explanation I have heard about Roth conversion. Fantastic! Keep doing more such videos.

[@jasoncons1653]

THANK YOU for touching on the pro-rata rule! After reading many articles about the backdoor Roth being portrayed as this amazing, secret tax advantaged approach, I did my own research to see how I could implement it. I learned about the pro-rata rule and, like you, found it isn't worth it for me due to the funds I currently have in several other IRA's. You are the only person I have found that highlights the real gotcha around this backdoor Roth. Appreciate the honest insight!

[@Rew123]

You're probably going to the wrong sources for your financial information. The pro rata rule would be a standard thing to cover when talking about a backdoor Roth. It's also mentioned indirectly on the form 8606, which you have to complete when you do a backdoor.

[@tmh44]

Thanks for this, I am in the middle of doing '23 and '24 backdoor Roth contributions. I did have a Trad IRA with a sizable balance, but am in the process of rolling that into my current employer's 401k to have a $0 balance in all other Trad IRAs before doing the conversion. This should avoid the Pro-Rata rule. Thought maybe this would help folks that might think it's impossible if they already have Trad IRA balances. If you have an active 401k that allows rollovers into it, you can clear the path for tax-free backdoor Roth conversions this way. Great vid as always, Rob!

[@thart3dylan97]

I had a traditional IRA with dollars in it but my employer allowed me to roll it over it into my 401k reducing my traditional Ira accounts down to $0. Now I can do a backdoor Roth each year.

[@DeborahMicheal6k]

Investments are the roots of financial security; the deeper they grow, the stronger your future will be."

[@DanielChirsq1]

The deeper your investment roots, the stronger your financial security will be in the future.

[@SebastianNoah5e]

Exactly! With my adviser, I’ve cultivated deep investment roots, strengthening my financial security for the future.

[@RubyOliverm5l]

I would love an introduction to an adviser who can help me strengthen my financial roots.

[@SebastianNoah5e]

My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further.

[@RubyOliverm5l]

Thank you for this amazing tip. I just looked the name up and wrote her.

[@EdisonOrtiz1]

To avoid the Pro Rata issue when having a pre-tax Traditional IRA, you can convert the IRA funds to your employer 401k funds, if the administrator from that fund allows it. Fidelity allowed me to do this.

[@jjohn662]

Thanks Rob! you never disappoint. THANK YOU for finding this i-ORP calculator. It helped me start to think about my exact tax situation with new insight. Everyone else in the planning community wanted a few grand to answer these questions at the preliminary draft level I was seeking.

[@vaderwashere365]

Just found this and thank you for the explanations. We have been above the Roth IRA income limits for a long time, so I have basically put IRA's out of my mind. Every year we max out our company 401K's and have quarterly buys of $10K-$20K in stock at our brokerage (and I didn't even have an IRA yet). Definitely opening one for myself and my wife and contributing the max to each and converting to a Roth IRA - and will make sure to do so at the beginning of each year. Great way to save a bit on taxes that I wasn't doing, as no one really explained it very well until your video. With ESPPs, private stock offerings, GET/529 college programs, real estate ownership, etc. it can really be hard knowing where to put your money - coming from an immigrant family. Familiarity with US financial systems is something families who have been here for a couple generations take for granted.

[@jdowanderson]

Fantastic video Rob. I’m a CPA and this was a very good explanation

[@ryanauker1144]

Why would I get a 1099R for doing this? Showing taxable income. So confused.

[@adamfrost9048]

I love all the detail in the video, it answered every question that I had which is unusual for most videos or articles on these subjects.

[@FrankBurgos]

Your videos are always well constucted and well informative. Thank you!

[@atkim122]

The best way my college mentor helped me understand the pro rata rule was: if you mix rum (non-deferred ira contribution) into your pot of hot apple cider (tax-deferred contribution), you can't just ladle out 100% rum to drink. If stirred properly, your solo cup will have the same ratio of rum to cider as is in the pot.

[@richhands5269]

My three favorite channels: Rob Berger, Stock Brotha, & How Money Works. Make my week complete! 🔥 🔥 🔥

[@harrychufan]

Add Ben Felix to that list!

[@everceen]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement in 3 years

[@justamanwithbeliefs]

consider financial advisory so you don’t keep switching it up... those sound like great picks anyways, not bad for 350k

[@garrickphillips-x1z]

@PaigeStone-p5e good gains! who is this professional that guides you please? enthused about investing for my eventual retirement but dont know how to go about it, for now I only invest in my 401k through my employer and gains are quite slow

[@beautifulpeopleonearth]

very much appreciate this.. was able to look up Katherine by her full name and at once found her consulting page, she seems impeccable !

[@SiddharthBhavsar-t9u]

SCHD gives qualified dividends (This are taxed at lower rate compared to interest or non-qualified dividends), which are sometimes less in amount compared to some ETFs giving non qualified dividends. Since this is Roth account and it will not be taxed, you can also go for something like JEPI.

[@usaindian1704]

🎯 Key Takeaways for quick navigation: 00:14 *🤔 A backdoor Roth IRA involves making non-deductible contributions to an IRA and then converting that money into a Roth IRA.* 01:50 *📝 Deductible IRA contributions are reported on tax forms to reduce taxable income, while non-deductible contributions are not deducted but still reported.* 03:38 *💰 Some individuals may not qualify to deduct IRA contributions due to income limits, leading to non-deductible contributions.* 05:15 *🔄 The backdoor Roth IRA strategy allows high-income earners to contribute to a Roth IRA by first making non-deductible contributions to a traditional IRA.* 07:34 *🚪 Initially, there were concerns about the legality of the backdoor Roth IRA strategy,but IRS rulings have validated it as a legitimate approach.* 08:58 *⚖️ Non-deductible contributions to an IRA count towards the annual contribution limit, which applies to both traditional and Roth IRAs.* 10:17 *🚫 The pro-rata rule requires considering all IRA funds collectively, affecting the tax implications of conversions, especially if there are pre-tax contributions.* 12:24 *🔄 The mega backdoor Roth IRA involves making after-tax contributions to a workplace retirement account and potentially rolling them over to a Roth IRA.* 13:45 *🔄 Roth conversions generally involve converting pre-tax or deductible dollars to a Roth IRA, which triggers taxes upon conversion.* 14:56 *🔄 It's possible to convert both non-deductible and pre-tax IRA contributions to a Roth IRA, each with different tax implications.* 16:08 *⏳ The five-year rule applies to Roth IRA conversions, requiring waiting to avoid penalties for early withdrawals.* 18:56 *💡 A backdoor Roth IRA can potentially save taxes in the long run compared to leaving funds in a taxable account, though consulting a tax professional is advisable.* Made with HARPA AI

[@DB-xp9px]

many 401k plans allow "in-plan conversions" of after-tax $ to a Roth bucket w/in your 401k account. we use fidelity and they set up what they call a "sweep" which the same day as the $ posts, they do the conversion. b/c it happens the same day, no taxable event occurs. the big catch is the $ u're contributing is at the top of your tax bracket. btw, there are irs limits on how much u can contribute given they have a "max from all sources" value of 68k (for 2024) so u minus all your pre-tax/catch-up/employer contributions from 68k and that's the amount available to backdoor in, at least when doing it thru a 401k in-plan conversion.

[@guitarsz]

Rob, you're a FANTASTIC teacher. Thank you!

[@davidmatke248]

Merry Christmas Rob! This was one of the best explanations I've seen on the Backdoor Roth! Thank you for all your videos!

[@L.A.---]

Thank you--this is the first time I've heard that the annual contributions(s) limit includes what you contribute to both your Roth IRA and traditional IRA. Thanks so much for this clarification.

[@billmartin1663]

Excellent video! Clear, concise, and answered all my questions.

[@ethanbarrieau7917]

I really appreciate that your videos explain all of the ancillary topics that surround the main topic of your video and didn't just refer us to another video explaining the other topic.

[@balertriton26]

Great video! One of my favorite features of the Roth too, and perhaps a reason for some to do the backdoor, is to provide this an inheritance vehicle. Roths can pass tax free to heirs 👍🏼👍🏼👍🏼

[@supermills03]

That's true but so do taxable accounts with a step up in basis, the difference I guess is when a roth is inherited it's still a roth and can continue to grow tax free for 10 years.

[@blew3749]

I've heard a lot about this. Thank you so much for going over it. I've been told to start a solo 401k with my business. Then convert it over into my Roth IRA. Seems very confusing. Do I pay taxes on the money the year I convert? How does this work exactly?

[@simone_maya]

Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account.

[@OneR635]

YOU are valuable in the KZbin world 🌎. Thank you so much for all your videos.

[@DerejeSalehudres]

This is the best I came across on Backdoor Roth, thanks!

[@Mark-oq9fl]

I ran simulations for Roth conversions on New Retirement and found, surprisingly, that the tax savings were minimal and my projected end of life end worth actually went down. With investments in the low 7 figures, I expected to see greater savings. Very worthwhile exercise.

[@raymondchae8926]

Thank you for your explanation of Backdoor Roth IRA. I have two questions, if you don’t mind. 1) While doing some research, I was told converting the funds from Traditional to Roth IRA immediately will trigger the Step Transition Doctrine from the IRS and was recommended that the conversion should be done minimum of 2 month or longer. You’re saying this is no longer true, correct? 2) If the Traditional IRA is funded by non-deductible funds, then what is the advantage of converting the funds to Roth IRA? If the Traditional IRA is funded by non-deductible funds, will the gains still be taxed while with Roth IRA there will be no tax when the gains are taken out at 60 years of age? Thank you.

[@jeremewright6962]

I wish this covered the step transaction doctrine. I still think there's confusion around that topic - does anyone know if additional guidance has been provided by the IRS - or perhaps by Tax CPAs - that clarifies the amount of time the non-deductible contribution should sit in the Trad IRA before it's transferred to the Roth?

[@alan39529]

Non deductible contribution to Traditional IRA- If this generates any dividends from the time we contributed and converted. Does it trigger any taxes or pro rata? ex: contributed $6500 to fidelity Traditional IRA, left it there to clear ex: 2 days, after 2 days converted to RothIRA. Now the Traditional IRA gives $3 as dividend at end of month for the 2 days we left it in for. Next year how to do Roth conversion? does this trigger pro rata rule, because I have money in my Traditional IRA ($3)

[@krishvenkataraman924]

Thanks Rob for the great information! Now I clearly understood the 'Prorata' rule 🙂

[@Jester-dh1py]

But how if the prorata set?

[@larkinwalker6659]

Thank you! Merry Christmas and Happy Healthy New Year! Roth has additional functions: for inheritance(s) and for the surviving spouse.

[@richcomeau7230]

The example at the end of the video is for no distributions for 20 years. If that is until after 59 1/2 then the example should include a third option for leaving it in a 401k. The 401k might earn the most because the money that would have gone to pay taxes can be invested for potentially even more compound growth.

[@nin1er13]

In this case, does it make sense to do both 401k and Roth IRA? Thanks!

[@cmil8191]

QUESTION: Thank you for taking the time to do this video. I have a pre tax 401K through my work. Can I then open a Fidelity traditional IRA and a ROTH IRA then contribute 6,500 after tax moeny (or whatever the max for Roth) in the traditional IRA and move all of the 6,500 to the Roth IRA??? Would this be considered as the backdoor Roth??? And I will NOT be subject to the pro-rate rule??? I am not touching my 401K it just stays there. Then in my tax return, I will fill out the form 8606. Thank you for your time in advance.

[@RobertW.Peinado]

I’m a little confused on the following: if you can only contribute $6,500 or $7,500 as 0:02 applicable, yearly to either a deductible or non deductible IRA how is it that I always hear that millionaires have made huge (Millions or Billions) back door Roth IRA conversions? How many years @ $6,500/$7,500 would this have to take for them to get these conversion amounts?

[@heidikamrath1951]

With catch-up, my contribution to my Solo Roth 401-k for 2023 was 30K.

[@likethesky]

Right. Mostly these huge contributions or Roth balances are coming from 1) mega backdoor Roth conversions like @heidikamrath1951 mentions above, which are much larger than $6500, and / or 2) one purchases stock after one has put those dollars in a Roth, and the stock goes up by 10,000% or some very large returns. See news stories about Peter Thiel who did this. Then congress changed the law for him so he’s getting taxed on it anyway, so if you’re super rich or make the news, congress may get you anyway!! 😅😂

[@tdaveniii]

I'm sure your explanation was good, but I'd love to see a thorough explanation and examples of the pro rata rule, because it seems at odds with everything one hears about Roths and the supposed flexibility to pick and choose whether to pull Roth or non-Roth funds out depending on ones' needs in retirement.

[@bdmonist]

Would a SARSEP IRA be included in the pro rata consideration? Or only traditional IRAs?

[@MrKewlplayer]

Question: I have a Roth 401k at work. I also have 2 separate Roths and 1 traditional ira in a outside account at one of the major brokerages. I'm over 50. I know you can contribute 8k per year. The part that is confusing me is, doesn't the work Roth 401k fall under the 8k limit with all my OUTSIDE accounts combined? OR DOES THAT FALL UNDER SEPARATE CATEGORIES. I WAS INFORMED ALL YOUR ROTHS AND TRADITIONAL IRAS CANNOT EXCEED 8K PER YEAR. I called a tax professional they state that's true. The Irs charges a 6% penalty if you over contribute.

[@junulee]

You're mixing 401(k) and IRA concepts. While participating in a 401(k) plan might limit the deductibility of IRA contributions, the IRA contribution limit is not impacted by nor does it impact 401(k) contribution limits. IRA contribution limits apply to all IRA accounts (whether Roth or Traditional) and 401(k) limits apply to all 401(k) accounts/categories (pre-tax/Roth). The $8k limit you referr to applies to all IRA accounts, not401(k) Roth.

[@MrKewlplayer]

@junulee OK, thank you!

[@defengsong7812]

Very clear and helpful. Thank you!

[@tracythompson1692]

Very Good explanation! I had not understood this strategy before hearing this video!

[@marcbrunet9976]

Hello and Thank you very much for the very informative presentation. I am now subscribed to your channel and I hope to learn even more. I was wondering whether I could re-characterize a quantity that I’d previously ré-characterize? I mistakenly did the first in an attempt to convert a Traditional IRA into a Roth IRA. The custodian is telling me I cannot do so but however I’m not seeing any IRS guidance saying that. I see guidelines stating that reversing a conversion is prohibited but nothing stating a re-characterization isn’t reversible. I’m attempting to do this before the tax window closes. Any help greatly appreciated!

[@paulbiel517]

Thanks Rob--really enjoy your videos and content One comment on the example, if the contributor to the taxable traditional account was able to claim the 20% deduction each year--then it is a wash between the Roth and Taxable account. The Roth has to pay the 20% tax each year of contribution which is an opportunity cost in additional investment; whereas the Traditional has to pay the 20% at the end.

[@Rew123]

The backdoor Roth maneuver does not apply to folks who are able to deduct a traditional IRA contribution

[@carak4356]

Hello Rob. The annual contributions limits don’t include your employer 401k or TSP right? You can max out your TSP AND max out a back door Roth IRA right?

[@DrBilly90210]

The main reason mega backdoor Roth aren't usually available in large companies/organizations is b/c of ERISA regulations. Complex topic but one aim is to prevent highly compensated employees (HCE) from having an advantage over low income earners vis a vis mega backdoor Roth strategy. There are "non-discrimination tests" such as average contribution percentage (ACP) and average distribution percentage (ADP) which are applied to the entire workforce. The data collection, analysis, and reporting takes a lot of work, so companies can avoid this by utilizing "safe harbor" provisions of ERISA, which effectively prohibits the mega backdoor Roth strategy mentioned in the video.

[@dec1slh]

I dont know which large companies you are referring to...most do offer mega backdoor

[@jviews1]

I was such a person in a 20 people company. Most employees put in small amount of $$ into their retirement. I was compensated more (not lots) and wanted to put in the max like 20% as I was 50+ years old. I was penalized later for putting too much in.

[@ansonturley2589]

Please do a video on M1 Finance and why this is your platform of choice. BTW great videos.

[@Adi-ir9kh]

If filing married joint if my spouse has pre-tax rollover IRA can I still open a traditional IRA on my name and convert to Roth IRA ? Does IRS consider all IRA accounts of both the filers for the Pro-rata ?

[@kersting13]

If you fall into the "phase out" category (say between $230k and $240k for MFJ 2024), can you make a non-deductible IRA contribution for the full amount and then convert, or do you HAVE to try and figure out how much you're allowed to contribute to Roth and then backdoor the remainder?

[@michaelsd284]

Hi Rob, thanks for the video. Question for you on the last part where you where comparing the Roth vs Taxable. Is it me adding to much complexity or are you oversimplifying, but this comparison is not apples to apples? For the Roth you are using post tax 6500/13000 contribution (which is pre-tax around 7800/15600 at 20%) vs the pre-tax 6500/13000 for the Taxable. So the more accurate difference will be the "today vs tomorrow" tax rate on the contribution for the Taxable as well as the tomorrow tax rate on the Taxable earnings. This should narrow the delta, but still agree the Roth should have the advantage just from the tax free earnings.

[@alexanderkrichevsky9194]

Can you do both backdoor conversion (limit $7500/y with catch up contribution) AND mega-backdoor conversion (limit $73,500/y minus 401k contributions minus employers match) within the same year?

[@graemeerickson]

Yes

[@LHJC292]

Can a Married filing separately utilize the backdoor roth IRA conversion using non-deductible traditional IRA contributions of the max amt ($7000 for 2024)?

[@mikumishka4193]

Great video! Thank you Rob. Quick question should we consider state of current residence and future residence when thinking about Roth? For example, I currently live in California and pay a lot of income tax, but in the future when I want to retire I might retire in a state with much lower taxes. Is that an important factor to consider?

[@Jonathan-bf2cm]

Aren't any withdraws from a traditional IRA considered taxable as income?

[@JMT970]

How does the pro-rata rule work if my wife has existing traditional IRAs in her name but I don't have any? I'm assuming since the "I" is for "Individual" and I don't have any existing IRA's in my name, I can open an IRA and do the backdoor conversion without worrying about the pro-rata rule. Is that correct? We are MFJ filing status if that matters.

[@huh28]

Excellent info as usual @robberger! Could do a video on how the secure act 2.0 allows 529s to rollover to Roth IRAs? I tried reading it but there wasn't a lot of details... thanks!

[@RobertW.Peinado]

I’m a little confused on the following: if you can only contribute $6,500 or $7,500 as applicable, yearly to either a deductible or non deductible IRA how is it that I always hear that millionaires have made huge (Millions or Billions) back door Roth IRA conversions? How many years @ $6,500/$7,500 would this have to take for them to get these conversion amounts?

[@danieljandersen]

I don't think they are converting Millions or Billions. I think they convert the allowable contribution ($6,500 etc) over a number of years, then they can invest that into pretty much anything. One of the advantages of an IRA over a 401K is you have a greater range of options to invest in. So what they do is invest in start ups, which potentially hit it big and become Unicorns, and therefore their Roth IRA has a huge value as a result. I believe those are the stories you are probably referring to. I believe the Billionaire Peter Thiel, a founder of PayPal, did this and is an often quoted story.

[@heidikamrath1951]

I was hoping Rob would speak of a Solo Roth 401K. It is still new to me. With catch-up, I was able to contribute $30K this year. I am self-employed and have no employees. There is a profit-sharing component which I did not contribute to, but will consider if I have a better $$ year in 2024. The profit-sharing component would be tax-deductible, whereas the $30K Roth part is after taxes.

[@dfhfhgfjgjkghjg561]

Thank you for your advise. Isn't the outcome of the pro-rata rule the same as a person converting a deductible IRA to a Roth IRA, with the exception that it benefits high earners that would be shut out of Roths entirely? I'm one of those thinking of converting deductible to Roth anyway so seems almost the same. Thank you again.

[@samkuolas6505]

Your example in the spreadsheet a bit misleading because the Roth IRA in spreadsheet should start with lower number than traditional IRA in light of upfront taxes required

[@michaelgutkoski6584]

Thanks for your advice, it's been very helpful. On Bogleheads, what is your basis for stating "1966 was the worst time to retire"? Inflation and the stock market was still reasonable then. Inflation didn't kick in until 1973 along with poor stock market performance.

[@useless274]

i'm trying to decide about this now. I rolled up several old 401k plans into an IRA to now have ~ 128k in my IRA. If I understand correctly, trying this mega-backdoor roth would require a conversion and then that $128k would be added to my annual income (and be taxed) ?

[@carloscruz-v6h]

Should I have been taxed on my traditional IRA conversion to a Roth IRA?

[@tmiller9099]

If I do a Backdoor Roth IRA conversion from an older Non-deductible IRA account, are the gains that have accrued in the Nondeductible IRA subject to Capital Gains tax when I do the conversion?

[@stevecothren7527]

Newer Subscriber here. I have watched several of your videos. I appreciate the content and delivery. I have a question for you. I have a Roth IRA that is over 12 years old at a broker so first 5 year clock is met, I turned 60 a few months ago so second 5 year clock met. I am planning on moving the Roth IRA to a different broker in kind due to expense fees. Does this in any way reset or start another 5 year clock. If so would it be better to leave a minimal amount in the original Roth IRA. Thanks for your help and keep the videos coming. Steve

[@renatosantos63]

Rob, my son is 26 years old. He only has a Roth IRA. He does not have any pretax IRA account. If he puts in nondeductible money into an IRA and does a conversion will the prorata rule mean the entire nondeductible amount will be converted? Seems like if that’s true he’s the ideal person to do a backdoor Roth?

[@freedeworld]

Perfect explanation!

[@hanwagu9967]

only about 20% employer plans allow after-tax contributions, but for those that do, you still have a similar pro rata tax consideration in doing a mega backdoor roth as you would a regular backdoor roth ira conversion. The key point on after-tax 401k contributions is that the earnings on after-tax 401k contributions are tax deferred. You must rollover or convert earnings from any after-tax contributions you rollover or convert. some plans have auto conversion of after-tax 401k into roth 401k. That should presumably negate any possibility of earnings, so there wouldn't be pre-tax earnings to also convert, so no taxes. Plans that allow in-plan conversion but not automatic conversion, you normally would be allowed to do this once a year, which means you would presumably have earnings associated with your after-tax contributions. So, you'd have to convert the earnings proportional to the amount of after-tax contributions you wanted to convert to roth 401k. because pre-tax earnings, you'd have to pay regular income tax on that converted amount, although there wouldn't be early withdrawal penalties. Some plans that allow in-service distribution rather than in-plan conversion, allow once a year in-service distribution. You can directly rollover the after-tax contribution into to a rollover roth ira, but again you have to also take a distribution on the earnings associated with the contributions you are rolling over. The good thing is that unlike in-plan conversion where you forced to convert earnings proportional to your after-tax contribution conversion, in-service distribution you can rollover the earnings associated with the after-tax contributions into a traditional ira. Now, if you don't have a huge trad ira balance, you could then do a backdoor conversion of the rolled over earnings into a roth with associated taxes. you can also cash out the earnings portion, but you would have to pay taxes and early withdrawal penalty.

[@dathat555]

The 401k of a past employer required me to submit a hand-signed form every time to convert after-tax contributions to 401k Roth. That was every two weeks if I wanted to avoid taxable earnings, and even then I would miss some small amount, as it was by dollar amount and not percentage. This was intentional I'm sure. It was such a pain I only did it quarterly. My current 401k with Fidelity allows a standing automatic sweep to Roth. Much easier.

[@mncbabu]

In service withdrawal of "after tax" 401k, results in two distribution. One is "amount contributed," which can be rolled into roth ira. The other one is "earnings on contributions"; which can be rolled into traditional ira. In both rollover, no tax to be paid.

[@likethesky]

Also, doing this (a mega backdoor Roth) has no pro rata rule, making it truly ‘mega’!

[@SarabjotSingh294]

Love the dive deep!

[@jingeralla]

will i be hit with pro rata if I have a 401k plan with my employer? or does it only apply to IRA's?

[@MotoBrit]

Great video - watched it about 4 times and took notes. Just one area to clarify if you could please: I have no existing IRA's or 401ks, (late starter and business owner) but now interested in future income strategies with after-tax money I have from my business. I'm age 54, so can I open a Traditional IRA with at least $200k (possibly more) from my checking account, then do a Backdoor Roth conversion the next day, with the full amount, then leave it invested for at least 5 years, and then draw tax-free income on the full amount? Including the gains?

[@GmanSJ]

It's been 4 months so not sure you will see this, but my understanding is that you have a max of $8K a year you can contribute (when you're 50+) to any IRA, regular or ROTH. And you can only contribute that $8K of earned income in the year that it was earned. We're both in a similar situation and age, and I'd love to do what you are suggesting--dump a big amount into an IRA and convert to a ROTH right away. Don't think we can do it. Love to be wrong though...

[@PurpleFrogHigh5]

Question: what if I don't have any traditional IRA now and do the backdoor Roth IRA contribution-conversion. In 2 weeks, I roll over my 401k into traditional IRA. Will the IRS pro-rata the Roth conversion when doing the backdoor Roth IRA?

[@alrocky]

Pro rata tax applies if your traditional IRA balance is greater than $0.00 on Dec 31 of this year.

[@PurpleFrogHigh5]

@@alrocky Thank you for explaining.

[@davidw1732]

Can you do more than one conversion in the same year? In March of 2023 my son made a non deductible contribution to a traditional IRA for tax year 2022. Then a few days later did a conversion in March 2023 for the 2022 contribution.. Last week in December 2023 he made a non deductible contribution to his traditional IRA for tax year 2023. Can he do a Roth conversion now even though he already did a conversion in March? The contributions are for 2 different tax years

[@comingshortly]

Maybe it’s not enforced but I believe the step transaction rule still applies. To be safe it’s best to wait a month or so.

[@ryant5067]

Will contributions from an inherited IRA still count towards the 7k limit in 2025? I have an inherited ira that is subject to the 10 year rule and need to figure out the best strategy for that is.

[@justinraywolfe]

This is all well and good for individuals making "earned income". Are there any similar strategies for those with nothing but "unearned income" sources such as rents, VA disability, and SSDI?

[@chrism9037]

Excellent video Rob, thanks

[@WilliamGill-ro1mh]

Hello Rob. On Target Date Retirement funds, I had been investing in one through work for years. I realized that by time you are within 10 years of retirement, the allocation is 50/50 stocks and bonds. That seems way too conservative to me. Your thoughts?

[@LeoBarnes]

Can you do a backdoor Roth conversion from a 401k into a Roth 401k?

[@SicilyJo]

Just putting a question out there. I’ve gone to two CPAs asking for help for a strategy to do conversions to Roth, including does it even make sense for me to do so? Also, they know I’m ready to pay for their services for this guidance. In each case I’ve been told I need to speak with my financial advisor. I speak with my financial advisor at Fidelity, and he says I need to speak with a CPA. My financial advisor is for my employer’s 401k plan. I do not use a managed relationship with Fidelity?(i.e., I’m not paying thousands of dollars to someone to manage my money). I’ve been told that that’s the only way I can get this kind of advice regarding tax implications and opportunities to minimize tax in retirement. It just seems crazy to me that this has to be so difficult. Does anyone else have this kind of issue in receding guidance for a tax minimization plan? Thanks for any perspectives shared.

[@likethesky]

Reach out to Mark Zoril, one of the advisors that Rob uses and recommends. After you pay his reasonable fee, he’ll have you talk to his CPA on staff who can advise. Talking to his CPA for your situation is part of the fee you pay to Zoril.

[@kayr3487]

Rob, you missed sonething in your excel sheet comparision. With the traditional roth, you dont't pay tax and you can invest that every year foe 20 years.

[@jeffro490]

Thanks Rob! Great video. Just so I understand, if all my contributions to my traditional IRA for the past 20 yrs were non deductible (paid after tax), I can backdoor convert the total amount to a Roth with no tax implications? Don’t I need to pay income taxes one time on the growth that I’ve made with this money tax sheltered? So I guess the question is that tax less than what the RMD taxes will be when I retire?

[@nicklyons4227]

Imagine you had made those non-deductible contributions to a Roth for 20 years. That is essentially the same scenario. Qualified Roth withdrawals are tax free, regardless of how much the account has grown above the contributions. I suppose your scenario would make sense for someone whose income is above the Roth income limits and did not have access to a workplace retirement plan.

[@JavedKhan-ki4nk]

I was told anyone can contribute around $7K per year in 2024 into traditional IRA and then immediately convert to Roth IRA. What you are saying with the pro-rata rule is this is not so. We do have fund in other IRA accounts. It seems like we have to convert all pre-tax ira accounts into Roth before we can contribute $7K per year into backdoor. Did I get that right? Thank you for your helpful videos. Regards.

[@gcs7817]

The answer is YES

[@yassinelam8269]

Hey Rob, after you do roth conversion can you contribute normally to roth after that even if magi income is above the requirement or should you keep doing conversion every year?

[@prakash661]

You do the conversion every year if your MAGI for that year is above the limit for Roth

[@dantheman6607]

What about the growth on your non deductible $$ is that tax free ?? Or just the $6500 contribution??

[@dhui777]

My late spouse left me a sizable 401k which I just converted into an inherit IRA account this year. Does the pro rata rule apply to inherited IRA account? I wonder if it still makes sense for me to continue to do backdoor Roth IRA conversion now that I have this inherited IRA account.

[@thecriticalsplash5894]

Not direct to the subect, but feels like a good topic for a video (unless you covered it, point to your video please!) Let's say a person thinks he needs $150k/year "spending" . how do we get a calculator (I can't find any) that can answer "how much do we need to have" assuming SWR of X% in Taxable (capital gains), cash, Roth and IRA ? it is of course complex and has many variables (what is the mix, which state, what portion of the brockagre funds are approicated vs cost basis..) but.. surely there is "a" sheet or calculator that can give me an idea? today my sheets assume a target number and a SWR to tell me when I am ready, but that ignores the fact that the number I track is as if there will be no taxes on the money, and clearly there will be depending on all the parameters mentioned above.

[@likethesky]

New Retirement is just such a ‘calculator’ that Rob talks about a lot. It’s very reasonably priced at $120/yr. Well worth it to do the calcs you’re talking about.

[@beautyobjectives1303]

Would I still be able to do backdoor IRA for 2023, even if I already filed my taxes? How can I report the backdoor IRA now that my taxes have already been filed.

[@brunoabdelnour348]

Thank you for this video!! Question: I have significant amount of Traditional IRA so due to the pro-rata rule it’s not wise for me to do the back door rollover to IRA Roth. My wife has $0 in traditional IRA (in her name), can I then make the back door conversion to Roth IRA for her retirement account without triggering taxes? Or does the IRS look at the combined traditional IRA balance for the two of us since we are married and file jointly? Thanks!

[@alrocky]

Q1 Yes Q2 No

[@brunoabdelnour348]

Thank you!!

[@tmiller9099]

Are 401k funds left with a prior employer (ie not a "rollover IRA") part of Pro Rata? I have a 401k from prior employer and a non-deductible IRA and want to convert the non-deductible IRA into a Roth IRA (backdoor conversion).

[@kevinkelly1535]

401ks are not part of the pro rata rule.

[@likethesky]

Check with a tax advisor, but I am pretty sure the answer is No. A 401k left with a prior employer’s custodian does not subject you to the pro rata rule, because it’s not in an IRA.

[@Tom_ch]

I receive regular monthly retirement payments from the state of Illinois. These payments have been taxed. Can I take money I received in the last 60 days and roll into a traditional IRA then roll it into a Roth IRA. And then repeat this every 60 days.

[@dan_ferritto_REAL_broker]

Excellent video, thank you.

[@kevinconley9365]

Hello Sir, I am so glad I discovered you on KZbin. I love your videos and I have learned a lot. You explain things very well. I do have a very general question as I approach retirement. If I am going to live 20-30 years in retirement what is wrong with just staying 100% invested in a S&P 500 Index Fund. Theres plenty of time to weather the bad years and end up at 10-12% average over time. I compare this to the 60% stocks, 40% bonds, etc. I would love your expert input on this. Thank for your help!

[@Rew123]

Volatility and sequence-of-return risk. I think you could pull it off if you had 3 years of living expenses saved in cash.

[@daisytructran9676]

There is one important item to note. In order to have $6,500 after tax money for the Roth contribution, you will need $8,125 pre tax money. Now do the same calculation for $6,500 Roth contribution and $8,125 deposit to a taxable account (I know it is over the contribution limit. For the sake of how powerful of the growth on dollar amount, we can ignore it to see different aspect of it). The after tax money on taxable account ($358,541) is actually bigger than the Roth IRA ($332,541).

[@thomasfrank1227]

great video. Thank you

[@GaryBiron-o4r]

Being retired, I converted from my IRA into a Roth paid the taxes. Do I have to claim the conversion amount as taxable income on my taxes, can I deduct that amount on my ago.

[@thepianist7084]

It is taxable income in the year that you did the conversion. But subject only to income taxes (federal and state) and not to Medicare/SS taxes.

[@LeesaLilHop]

I am from Delaware so learning that Roth was a DE senator was a great unexpected fun fact! I have been trying to understand the backdoor Roth for so long and now that it actually applies to me, I am very grateful for this video!

[@BlokFinance]

It is absolutely worth it if you make more money than they allow for you to open a roth, catch is you need the roth invested properly over time so the gains in the long run outweigh the the taxes you pay upfront. So your ira has to perform well over years in capital appreciation so when you start takiyour Roth $ you are not paying tax then, so that’s where you would want to pull from there first when your in retirement time, before pulling from your 401k or other investments.

[@adamtki]

Does the pro-rata rule apply to 401(k)s?

[@adamtki]

I continued watching your video and your next segment answered the question

[@danielmolinari4299]

Hi! Thanks for the videos… I contributed to my Roth IRA directly and refently learned that in 2022 and 2023 I was above the contribution income limit, so I need to correct this. Do you know any professional that can support with thus process? The CPA that is tryinf to support me wasnt super helpful

[@johnnow1]

I made about $1500 to non deductible traditional IRA years ago. Do I leave it there or should I move it to the Roth IRA now?

[@ImGigantor]

I was in the same boat. I put $1000 in a non-deductible in 2022 and let it sit. It grew a little bit, which is a problem when you convert it to a Roth. Those gains are taxable. I went ahead with the conversion earlier this week, but I think my taxes just got more complicated 😅

[@CuriousMind83]

Hey Rob, thanks for great videos, I learned a lot from you over the last couple years. But sometimes it gets a bit too lengthy to understand the main points, so if you, maybe, could do a quick summary at the beginning, it would be awesome. I know tax laws are crazy and certainly deserve deep dive, but sometimes I find myself getting lost watching some of your videos or not being able to finish them and extract the juice, if you know what I mean. A couple of summary slides up front May serve this purpose very well. Just a suggestion.

[@krishvenkataraman924]

Yes. Summary slides would be amazing! Your videos are quite dense (in a good way!)