How to perform a Fidelity Backdoor Roth IRA (Step by Step Guide)

[@TheCreditFrog]

🌟 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!

[@sohilshrestha9506]

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?

[@TheCreditFrog]

@@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.

[@sohilshrestha9506]

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

[@Ryanduncan27]

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?

[@TheCreditFrog]

@@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.

[@DonovanBrown]

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.

[@DonovanBrown]

The only thing could add is information on the required forms to submit with your Tax return.

[@TheCreditFrog]

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!

[@TheCreditFrog]

Yes, this could be a helpful thing to explain. Maybe in a future video!

[@TheCreditFrog]

@user-tm1kb3fq4m It’s a pretty simple process, but if I ever make an updated video, I’ll be sure to include it👍!

[@TheCreditFrog]

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! 👇

[@missouri6014]

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.

[@TheCreditFrog]

@@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!

[@TheCreditFrog]

@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.

[@karlasanchez2422]

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

[@TheCreditFrog]

@@karlasanchez2422 There's a lot that goes into that. I would recommend you speak to a financial professional if you have specific questions.

[@JonTheJotter]

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

[@TheCreditFrog]

You're welcome Jonathan! I'm glad that you found the video to be helpful!

[@nesewww10]

Probably the best walkthrough I have watched! Thank you!

[@TheCreditFrog]

You’re welcome! Glad you found the video helpful!

[@zhxiaol]

Dude your video is right to the point, clear and easy to follow. Love it. Subscribed!

[@TheCreditFrog]

Hey, thanks! I’m glad you found it helpful, and I appreciate your support 👍!

[@AbiTheEngineer]

I've been so worried about this process but this video made it so simple! Thanks for the step by step!!!

[@TheCreditFrog]

Of course! No problem, and I'm glad I could help you out!

[@n0t_today_satan]

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

[@TheCreditFrog]

You're welcome! Glad you found the video helpful!

[@PLo_Trades]

Perfect! This is what I've been looking for when it comes to a step by step explanation. Thank you!

[@TheCreditFrog]

Of course, Peter! Glad you found it helpful!

[@tito11960112]

Wow, what an amazing video. Perfectly executed with clear, simple instructions and illustrations. Perfect editing too. Great job man!!!! Thank you 👍🏼

[@TheCreditFrog]

Thank you so much! I appreciate your kind words. Glad I could help you out with this video!

[@la54578]

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?

[@TheCreditFrog]

@@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.

[@neilwolff7894]

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!

[@TheCreditFrog]

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!

[@Tom-PlaylistKing-Smith]

Even I understood this video. Thank you for keeping it simple for the novice.

[@TheCreditFrog]

You're welcome! I'm glad I could help you out!

[@SpencerJohnsonOfficial]

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!

[@TheCreditFrog]

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 🤩!

[@SpencerJohnsonOfficial]

@@TheCreditFrog I'm excited for the day! And I'm loving that green badge. Definitely looks nice!

[@karllazlo6237]

Wonderfully explained and so much easier to do this on Fidelity than the Vanguard site. Thank you.

[@TheCreditFrog]

You're welcome! Glad to hear that it's much easier over on Fidelity!

[@sportsfan1717]

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.

[@TheCreditFrog]

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!

[@aau_626]

@@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!

[@TheCreditFrog]

@AustenOw Roth convert it. I’ll have to pay ordinary income tax on it but that would be a small amount.

[@aau_626]

@@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!

[@TheCreditFrog]

@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!

[@vp4049]

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.

[@TheCreditFrog]

Glad it was helpful!

[@Jithu_VA]

Great step-by-step video. However, the last and most important thing is to invest that money which was converted to some good MFs.

[@TheCreditFrog]

Thanks! Yes, investing those funds after the Roth conversion is very important too!

[@codemaxxx]

Though this video is a little old, I just stumbled upon it. This is GOLD. Thank you so much

[@TheCreditFrog]

You’re welcome! Glad you found it helpful!

[@OfficialEricGao]

Great information Stan! I can definitely see this video being an evergreen video based on how clear and well explained the information is!

[@TheCreditFrog]

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!

[@HildaCV]

Best training after watching 20 others. Thanks!

[@TheCreditFrog]

You're welcome! Glad you found it helpful!

[@selbyjohnson7226]

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?

[@TheCreditFrog]

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!

[@melissaschmit4394]

I have 2 different old IRAs. Just to make sure, can I transfer them both in Roth IRAs in January 2024?

[@PinchAPennyWithJenny]

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.

[@TheCreditFrog]

Of course! I’m glad that this video was helpful, and I appreciate your support!

[@MattWelterOfficial]

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.

[@TheCreditFrog]

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!

[@ZeroToProfitable]

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!

[@TheCreditFrog]

You’re welcome! Happy to hear you found this video to be helpful!

[@joshua.butler]

first!

[@TheCreditFrog]

You got first Josh! 🥇

[@tristanolarti9671]

Thanks for making this simple. Articles make it seem so difficult and confusing with technical jargon. Subbed

[@TheCreditFrog]

You're welcome! Glad you found the video helpful. Appreciate the support!

[@nadali91]

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.

[@TheCreditFrog]

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!

[@mching7282]

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.

[@TheCreditFrog]

@@mching7282 Yes, that is exactly what you do!

[@harrisonandamanda_]

@@TheCreditFrogwould he not get a penalty for contributing $7006.00 instead of 7k though?

[@TheCreditFrog]

@ 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

[@satyav2101]

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?

[@TheCreditFrog]

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!

[@tali6144]

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!

[@TheCreditFrog]

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!

[@tali6144]

@@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).

[@TheCreditFrog]

@@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 👍!

[@idevgandhi]

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?

[@TheCreditFrog]

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.

[@simysuresh]

Great video. Thanks for the clear explanation of step by step process.

[@TheCreditFrog]

You’re welcome Sony! Glad you found it helpful!

[@loucinci3922]

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

[@TheCreditFrog]

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!

[@VIKFPV]

Best video explanation on backdoor roth conversion!

[@TheCreditFrog]

Thank you! I'm glad you found it helpful!

[@USABerti]

Stan, thank you for the information. Would you be so kind to elaborate on what you said at 7:55 / "you are unable to do Roth Conversion" if your core position is not in "FDIC Insured Deposit Sweep" ... as in technically or legally ? I did some research and realized I could have done the transfer (from Traditional to Roth) even from the Money Market account. At least from a technical standpoint which is not possible anymore as I'm waiting for the core position to change/settle so I can do my conversion. Why the extra step and risking the accumulation of interest to change the core position ? What am I missing ?

[@TheCreditFrog]

Sure, no problem. Yeah, so this is from a technical perspective. When I do my Roth conversions, I had trouble doing so while my core position was in SPAXX, but once I switched this to FDIC, I was able to Roth convert with no issues. Others in the comments have told me that they have converted while in SPAXX with no problems. So I guess it depends on the person. Changing the core position would be the first thing to troubleshoot if Fidelity is not letting you do the Roth conversion. Hope that helps!

[@michaelkrestyaninov3254]

Thank you for the video! Quick question, at 2:30 you are not recommending doing Traditional -> Roth conversion for those who already have a funded Traditional IRA account. If I understand pro rata rule correctly, such conversion should not be a problem if Traditional IRA was fully funded with non-refundable post-tax money? Also, what kind of problems do we get when we convert a Traditional IRA account that has been around for a couple of years (assuming that it was funded with non-refundable post-tax money)?

[@TheCreditFrog]

You're welcome! Any money in Trad/SEP/SIMPLE/Rollover IRAs will count towards the pro rata rule, at least that's how I see it, but I'm not a financial professional. To be completely safe, if those IRAs had $0 by Dec 31st, that would be ideal. I would ask a financial professional for additional clarification based on your specific situation. If you Roth convert Trad IRA dollars, the amount you Roth convert will be taxed at your ordinary income tax rate. Hope that helps!

[@jeromeeusebius]

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"

[@TheCreditFrog]

I appreciate that! Thank you so much for your support, and glad I could help you set up your own backdoor Roth IRA!

[@toyarj37]

That was super easy to understand and I’ll be setting this up bc my 401k and brokerage acct is already with fidelity.

[@TheCreditFrog]

Awesome! That will make tracking all your retirement accounts easy

[@ChuotTheCat]

Subscribed. this is the clearest video on the subject so far.

[@TheCreditFrog]

Thank you! I'm glad you found the video helpful!

[@AZ-bq3bb]

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?

[@TheCreditFrog]

@@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.

[@johnlump3950]

Dammit! How have I missed this for so many years! Just did it. Thanks!

[@TheCreditFrog]

No problem! Hey, as long as you get started, that’s what’s most important!

[@HeshBamboo]

Thank you for this very informative video! I have one question, does the contribution to the traditional IRA need to stay in the account for a specific amount of time before rolling over to the Roth IRA?

[@TheCreditFrog]

You’re welcome! It should stay in for as short as possible and should be Roth converted ASAP. Sometimes it takes a few days for the funds to clear depending on the bank.

[@DebraMAnaya]

Thank You ! Perfect details in your video . perfectly explain its enough information about how to increase funds position in fidelity .

[@TheCreditFrog]

You’re welcome! Glad you found the video helpful!

[@neita987]

Thank you for this video! You saved me a call to Fidelity :)

[@TheCreditFrog]

You're welcome Andrea! Congrats on getting that backdoor Roth in early this year!

[@victortupiza8046]

Thanks for back door tip, quick question can you speak on the (Post 86) option in 401k

[@TheCreditFrog]

Sure thing! Unfortunately, I’m not as familiar with the Post 86 option for 401k so I’m not entirely sure.

[@heejungnam2216]

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 KZbin 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?

[@TheCreditFrog]

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.

[@levimiller2024]

I made the max deposit of $7,000 to my traditional IRA last month, which grew to about $7,013 from sitting in a money market. Do I still convert this entire balance? Or is this $13 considered capital gains?

[@TheCreditFrog]

Yes you’ll convert the entire balance and have to pay ordinary income tax on that $13

[@olgaievtushenko9635]

Whats about form you need to feel it up before to do this step? 8606 ? When you fill it up

[@TheCreditFrog]

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.

[@raymondchae8926]

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?

[@TheCreditFrog]

You’re welcome! If you’d like an explanation to that, I’d recommend speaking to a lawyer or tax professional!

[@Deezy94]

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?

[@TheCreditFrog]

HSA was separate from backdoor Roth IRA. After you put funds in, they need to be invested!

[@bbbbbbb11111]

This is so helpful. What happens if I already have stock investments in Traditional non deductible IRA in fidelity account? How can I roll over to Roth IRA using backdoor strategy?

[@TheCreditFrog]

If you have assets in a Trad IRA already, it would be important to Roth convert those before proceeding with a backdoor Roth IRA. If you have a lot of assets, this may generate a large taxable event so in that case, it may be helpful to talk to a financial professional to see what your options are, for example, a Roth conversion ladder.

[@christinewyzer3121]

Stan. Can you explain why the core position in the traditional IRA has to be in FDIC. What’s the back story on that when doing a back door conversion. I never heard of that. Second question. I have already contributed 7500.k in the Roth for 2023 regular front door. I’ve been hearing that I can do additional back door conversions into the traditional and back door to Roth and file a form 8606. I hear there is no dollar limit also. Can you clarify if this process is correct and maybe a video in detail. Looking to get large dollar amounts into the Roth above the regular yearly contribution. Behind on investing but have the cash to catch up and don’t want to invest solely in the brokerage account. Thanks

[@TheCreditFrog]

Hi Christine. Sure! So as for your first question, some people (including myself) have had problems doing a Roth conversion when the core position is in SPAXX. When I changed to FDIC, this allowed me to do the conversion. Others have been able to convert from SPAXX with no issues so I guess it depends on the person. For the second question, if you contributed $7,500 through the Roth front door, there is no need to do a backdoor Roth, because the whole point of this is to get around the income limits. You cannot contribute more than $7,500 in a single calendar year for people ages 50 or older. What you can do, however, is Roth convert existing IRA or even 401k/403b assets into a Roth IRA if you wish. If you have those types of assets, I recommend consulting with a financial professional to see what your options are.

[@gopscreative3]

Thanks Stan. Very informative video! I did read from comments that conversion for that present year makes form 8606 very easy. Why is that so? I want to contribute to 2023 in Feb 2024, which is still possible by April15th. But how does this make form 8606 complex?

[@TheCreditFrog]

I’d you look at the Form and see where you have to put the numbers, the calculations are somewhat more challenging. I think that if you follow the instructions, it shouldn’t be too bad, but I’ve never tried it so not sure specifically how it’s done.

[@cocoli2012]

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 ?

[@TheCreditFrog]

You report this on Form 8606 when you file your taxes

[@nimahosseinian8710]

I prefer to make monthly contributions. Is there any difference between doing a monthly conversion from traditional IRA to Roth IRA and then invest each month, or make a single max conversion to the roth IRA at the beginning of the year, and then invest a portion each month? Also, what do with the gained interest on the money held in the Traditional IRA before conversion? For example, lets say i contribute $500 to the traditional IRA and by the time I wait for it to clear, it earned 1$ in interest. Can I then convert $501 without taxes/penalty to Roth IRA, or only the $500 that was originally contributed? Thank you for the video!

[@TheCreditFrog]

There's no difference except you have to do that 12 times instead of once, which can be annoying to keep track of. In terms of the gained interest, you can Roth convert it, knowing that you'll pay ordinary income tax on it, but since it's a small amount, it's usually a negligible amount anyways.

[@bohuang5001]

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

[@TheCreditFrog]

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.

[@prerakshah1191]

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?

[@TheCreditFrog]

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

[@joshua.butler]

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.

[@TheCreditFrog]

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!

[@mikelaary911]

⁠@@TheCreditFroghow do you make sure it doesn’t flag any tax contributions ?

[@TheCreditFrog]

@@mikelaary911 Not sure if this answers your question, but Fidelity won’t let you contribute more than allowed for the year.

[@benkalman8751]

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!

[@TheCreditFrog]

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!

[@OrcasV]

Thanks for the information. How do we get rid of the balance in our traditional IRA if there's already balance in there? If it's just a small amount, can we just include it with the back door roth and just pay the tax it will trigger?

[@TheCreditFrog]

Yes, that certainly is one option. It depends on what "small amount" means. If it truly is a "small amount" then Roth converting it would be ok, but if it's something that may move you into a different tax bracket or a higher amount than you realize, it may be worthwhile to consult with a financial professional to figure out if a strategy like a Roth conversion ladder would be helpful.

[@mercedescardenas03c]

At 02:31, you said “the strategy is not an option if you have other funded iras”. So the Roth IRA can have funds by Dec 31, but the traditional Ira needs to be at $0 if this is the case? Did I get that correctly

[@TheCreditFrog]

Yup! That’s correct!

[@sarahrahman6164]

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?

[@TheCreditFrog]

You’re welcome! Yes, after doing the backdoor Roth IRA, you need to invest these funds so that they can grow over time.

[@jasonbrooks6208]

Could you do a follow up video on IRS requirements of a backdoor and a step by step IRS Form 8606?

[@TheCreditFrog]

Sure, I have a video like that already here! kzbin.info/www/bejne/h2q5YqSwZ9d9f7M

[@gabrielcr78]

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

[@TheCreditFrog]

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!

[@CYLiu13]

Stan, this is the video I have been looking for for years on how to do back door IRA. THANK YOU for showing us how to do it step by step. I have few questions if you don't mind helping me out. Unfortuantly, I have money (~$60K) invested in Traditional IRA already in various stocks, dividens stocks, etc. and I would still like to do backdoor conversion into ROTH IRA. I have already transfered $7,000 contribuation for 2024 and the money is currently sitting in FDIC-INSURED DEPOSIT SWEEP. How do I do this? Do I just go ahead and sell all the stocks I have in Traditional IRA and sonce allt he money are in FDIC-INSURED DEPOSIT SWEEP then do backdoor ROTH IRA and pay the tax? Thank you.

[@TheCreditFrog]

Hi there! So for your situation, since you already have a lot of money in your Trad IRA, I do not recommend you proceed with the backdoor IRA method until you speak to a financial/tax professional. There’s no need to sell your stocks, but if you do a Roth conversion on all those funds you will trigger a massive taxable event. In your situation, if you want to do a Backdoor Roth strategy, one option would be to do a Roth conversion ladder strategy over a few years, and a financial professional can help you do this, or even suggest something different if it’s better for your situation.

[@demondjackson3241]

Awesome best I've watched paying attention to details and situational awareness 👍🏼👍🏼

[@TheCreditFrog]

Thanks! I really appreciate your support, and glad you found the video helpful!

[@nova8585]

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?)

[@TheCreditFrog]

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.

[@Frederick-Jones]

Great video! One question: I made a sizable contribution to my Roth IRA in 2024, but am now worried I will surpass the income limit, as I received a raise and my salary was backfilled to January 1st. So my question is: can I move that contribution out of the Roth into a traditional IRA, and then backdoor to the same Roth I moved it out of?

[@TheCreditFrog]

If that contribution has already been invested or has made any interest, I'd recommend speaking to a financial advisor for further guidance on what to do. It's not as simple as you described, and you want to make sure you take that money out of the Roth correctly so it doesn't trigger a tax issue.

[@reynalenesandiego3075]

@@Frederick-Jones hi. Did you consult a tax person about this? ☺️

[@simysuresh]

Can you please do a video on HSA/FSA to include the eligibility criteria? I have a $500 FSA from work and I am not sure if I can contribute towards HSA.

[@TheCreditFrog]

I'll have to look into it!

[@sharonwatt788]

Amazing video walking through all the steps!! My question is how important is the end of year timing? I always thought that the whole process had to be completed before Dec 31st but are you saying the conversion should be done Jan 1st of the next year, is that timing more ideal? It's stressful bc I am traveling over the holidays and new years and want to take care for this before I leave. So for 2024, what are the implications of doing everything late Dec 2024 as opposed to over late Dec 2024 and then conversion say Jan 3rd 2025?

[@TheCreditFrog]

Thanks! So I contributed for 2023 in Jan 2023. The stuff beforehand you're looking at is from Dec 2022. I advise doing the Roth conversion in the same tax year to make things simple!

[@sharonwatt788]

@@TheCreditFrog Ah gotcha, thanks for explaining that, I should just take care of it earlier in the year!

[@Sumeet401]

Really helpful video. I have moved money at the start of the month from traditional to ROTH IRA and hit the max limit for the year. Now I see at the Feb month end in traditional IRA I have interest of $0.50. What can I do with it? I understand one should keep balance on traditional to 0. Please advice. I guess lesson learned is keep some buffer and don't max out in one go.

[@TheCreditFrog]

You can Roth convert the excess no problem!

[@Sumeet401]

@@TheCreditFrog thanks for your response. It will exceed yearly limit then. How does it work then? Secondly I haven’t tried but need to check if system will allow me.

[@TheCreditFrog]

@@Sumeet401 You will pay ordinary income tax on the overage amount, in your case $0.50

[@hliyaj1220]

Could you please explain again in a detail version. So once we put money into the traditional IRA, do not buy stock yet, instead transfer that amount directly to the Roth IRA then buy stock from there? I don't really understand this. Please explain.

[@TheCreditFrog]

Bank to Trad IRA, then Trad IRA to Roth IRA, then you can buy investments in the Roth IRA. That's how I do it, but if you wanted to buy investments in Trad IRA first, you could, it just makes filling out form 8606 harder if you have capital gains.

[@hliyaj1220]

@@TheCreditFrog thank you ❤

[@BryceCorbitt]

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.

[@TheCreditFrog]

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.

[@BryceCorbitt]

​@@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😁

[@duberm1612]

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 ?

[@christianw4232]

Thanks! Changing the core position was the step I was missing in getting this to work and only found that info here :)

[@TheCreditFrog]

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!

[@rominao.9941]

What type of cash management account do you use? FDIC insured or the Fidelity Government Money Market Fund (SPAXX)?

[@TheCreditFrog]

The one by Fidelity! I use FDIC for holding before the Roth conversion.

[@NFLFantasyHighlights]

Thank you for making this video clear and step by step

[@TheCreditFrog]

No problem. Glad you found it helpful!

[@levastories8025]

Great video! Thank you so much! I just have a couple questions: 1. Can I skip step to put money from bank to CMA and instead put money from bank straight to Traditional IRA? 2. How can I make sure I put NON deductible money! I didn't see it in a video. Maybe I have to file some additional form for IRS? 3. Are you sure after all this get done you don't need to pay Tax on money you convert and on future gains from ROTH IRA? I appreciate it in advance

[@TheCreditFrog]

Sure thing! So 1. Yes you can skip this step, 2. You will fill out Form 8606 to declare it as a non-deductible contributions, 3. Yes, once the money has been Roth converted, any money gained in the Roth IRA will not be taxed.

[@levastories8025]

@@TheCreditFrogthank you so much sir!

[@levastories8025]

@@TheCreditFrogOne more question my friend! If after conversion from Traditional IRA it's gonna be some interest accumulated I know you recommend it convert as well! So I should convert it like non deductible or deductible amount?

[@TheCreditFrog]

@@levastories8025 Convert it as a nondeductible amount. This will show up on the same form 8606 so it will be simple!

[@skskyyk]

so helpful! Thanks for breaking it down step by step

[@TheCreditFrog]

You’re welcome! Happy you found it helpful!

[@setYourHandleHttp404]

Thanks! 1- When is the deadline for transferring money to a Traditional IRA? 2- When is the deadline for the conversation? Could they happen in the next year until April of the previous year?

[@TheCreditFrog]

You're welcome! Both deadlines are April 15th for the previous tax year.

[@BrandonTran]

My 401k is maxed so the $6500 that I put into my traditional IRA is my personal after tax money. I already paid taxes on it. Are there other steps I need to do such as call these out when filing taxes for the year? Thanks! Awesome video!

[@TheCreditFrog]

Of course! You report the non-deductible contribution on Form 8606 so that's how it's declared.

[@BrandonTran]

@@TheCreditFrog Tremendous! Thank you so much for answering.

[@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!

[@TheCreditFrog]

This is probably a question best for a financial or tax professional. Unfortunately, I'm unable to help you with this specific issue, but I'm glad you were able to learn from this video regarding a backdoor Roth!

[@venkatmurthi4421]

Hello - great video. Btw, one of my friends did a similar process but with Schwab. However when he did the transfer to Roth, withheld 10% and allowed only the remaining 90% to transfer. Can we avoid this penalty?

[@TheCreditFrog]

You have an option to withhold with Fidelity, but you can choose not to. For this strategy, it's better if you don't do a withholding in most cases, but if there are questions, consulting a financial professional would be prudent.

[@jccomics1467]

Hello, very helpful video. For me, 2024 will be the second yr i do a backdoor roth and I'm also at fidelity. When i did this in jan 2023 however i did have my core position in the traditional ira as spaxx. I went through the steps as you indicate without trouble. Am i going to be in trouble or owe penalties for this?

[@TheCreditFrog]

Thanks! So no, you will not get in trouble or owe any penalties. Multiple people have commented that they have Roth converted while in SPAXX with no issues. I just had an error with SPAXX, but didn't when I had my core as FDIC, but I don't think it really matters - as long as you can do the conversion, you're good.

[@jccomics1467]

Cool

[@ngarg84]

Stan, great video-super helpful! Quick question about HSA accounts: Is it possible to contribute to an HSA up to the yearly limits without being enrolled in a High Deductible Health Plan (HDHP)?

[@TheCreditFrog]

Thanks! No, you need to have a HDHP to qualify for an HSA.

[@huy3967]

Thank you for making this step-by-step video. It is super useful!

[@TheCreditFrog]

Of course! Glad you found it to be helpful!

[@huy3967]

@@TheCreditFrog Perhaps, you could do a video about "Mega backdoor Roth" which I hear people talking about it.

[@TheCreditFrog]

@@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!

[@adamfenyvesi]

Hi Stan! Thank you for the detailed video, very informative. I just performed my $6.5K contribution for the 2023 tax year to my traditional IRA. However, when I want to do the Roth conversion, my brokerage's system tells me that I can only do the conversion in the 2024 tax year. Can you please detail what was the reason you did these actions in the new year? Should I be concerned about potential tax implications considering the tax contribution was logged for 2023 but the conversion would be in the 2024 tax year or does the tax form 8606 account for this?

[@TheCreditFrog]

Hi Adam! I would check with your brokerage and see if they have characterized your contribution for tax year 2023 or 2024. For Fidelity, you're able to select which year you want your contribution to be. I performed the Roth conversion for 2023 in 2023 because it makes Form 8606 very easy to fill out if you do it this way. If you Roth convert a 2023 contribution in 2024 before April 15th, it's still ok, but it makes Form 8606 more complicated.

[@insidemyownlittleworld]

Thanks for this video stan ! Just to be clear, this is for high-income earners who make more than the allowed threshold of $161,000. All you have to do is transfer it from the Traditional IRA to the Roth IRA to avoid any problems? Also, what happens if you decide to transfer money into your Traditional IRA and it accrues gains-can I transfer that into the Roth IRA, or does it have to be only the money I put into the account?

[@TheCreditFrog]

You're welcome! Yup, all you need to do is transfer money into the Trad IRA and then Roth convert that money to the Roth IRA, assuming you have no other assets in other IRAs like I mentioned in the video. If you accrue a little interest or gains, you can certainly also transfer that money into the Roth IRA too, but know that you'll be taxed on that amount over the contribution limit. This interest or gains is usually a few dollars if you only left the contribution in for several days so it shouldn't result in much additional taxes. Hope that helps!

[@siddharthsinha123]

Great video! Had a quick question though - I had some spare cash in the investment account in fidelity, can I move the $7K from there to the traditional IRA instead of the cash management account?

[@TheCreditFrog]

Yes, you could do that instead.

[@1Talex]

Thanks for the video. You mentioned not having a traditional IRA prior doing a backdoor to prevent some tax complications. If I currently have a funded traditional IRA with Schwab for example, would it be "safe "to perform a backdoor contribution with Fidelity? Using new fund

[@TheCreditFrog]

The whole goal of the backdoor Roth method is to avoid taxes when you do a max contribution to the Trad IRA and do a Roth conversion for the same year. However, this tax strategy is nullified if you have assets in another Trad IRA by Dec 31st. If you have assets in another Trad IRA, and you want to do the backdoor Roth, I don't recommend proceeding unless you have a plan to Roth convert those funds as well. If you do so, you will pay ordinary income tax on that conversion. If it's a small amount, it's not a big deal, but with larger amounts, this could create a huge tax burden. If there's a lot of assets, it may be worthwhile to speak to a financial professional to see if a Roth conversion ladder over several years would be the better move before you start doing a backdoor Roth IRA. Hope that helps!

[@1Talex]

Thank you.

[@namasterising]

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!

[@TheCreditFrog]

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!

[@tlckl3m3elmo]

Question. My wife has some money in her Traditional IRA from about 2 years ago which was due to overcontribution to her ROTH IRA for that year (partial allowance since she her income was partially in the middle). She is making over the allowed limit and is now able to do backdoor ROTH conversion. How do we manage those current funds in her traditional IRA prior to the backdoor ROTH conversion?

[@TheCreditFrog]

You would have to Roth convert the entire amount in the Trad IRA to do the backdoor Roth properly. Having said that, this may trigger a huge tax bill so if that’s your situation, I recommend speaking to a financial professional to discuss your options.

[@kyleramkissoon9007]

Excellent Video! Do you have any videos on the MegaBackDoor Roth ?

[@TheCreditFrog]

Thanks! No, unfortunately I do not.

[@biancachan2507]

Super helpful video! I just converted my traditional to roth for the first time and watched this video right after. I wish I saw it beforehand-- why would Fidelity not let you transfer funds if they are held in SPAXX? I didn't know about this so my funds were in SPAXX automatically but it let me transfer them no problem. Do I need to do anything else then?

[@TheCreditFrog]

Hi Bianca! Some people have reported no issues Roth converting funds that are in SPAXX, so if you were able to do it, then that's great! I was having issues during my conversion so that's why I converted my core position to FDIC first, and after that it worked for me.

[@biancachan2507]

@@TheCreditFrog thank you!

[@aashoo5]

Thanks for this awesome video. I have a quick question. I already have money in my Traditional IRA. some in 1 CD and some stocks where I have lost money. How can I transfer the previous years contribution to ROTH IRA by minimizing taxes. Do I still owe taxes on stocks that are losing money ?

[@TheCreditFrog]

That would be a question to ask a financial professional. They can let you know the most tax efficient way to Roth convert those funds.

[@aashoo5]

Thanks@@TheCreditFrog

[@sskpln]

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 ?

[@TheCreditFrog]

Thanks! I recommend you speak to a CPA or tax professional to see what your options are.

[@gsw5109]

Thanks, and what would be the $ limit annually for a backdoor Mega Roth IRA?

[@TheCreditFrog]

I’m not sure. It’s usually tied to the amount that you can contribute to your 401k/403b both from the employer and employee side

[@gsw5109]

@@TheCreditFrog thank you!

[@dollydarshan24]

Wow, that was very clear and descriptive. Just what I needed. Have a question though. My traditional IRA has both pretax and non deductible dollars. To avoid pro rata tax, I plan to roll in the pretax dollars into my 401k and leave just the after tax dollars in my traditional IRA account. For instance, If the account has 80,000 of which has 5 non deductible contributions 5x6000=30,000. I rollover 50,000 (which includes interest earned on the non deductible 30,000) into my 401k and leave the non deductible portion of 30,000 in my traditional IRA. Am I now allowed to do step 2 Roth conversion without any prorata taxes on 30,000 after tax dollars?? Once I am able to move it to Roth, I then plan to maintain a 0 traditional IRA and do exactly what you suggested. Your advice will be greatly appreciated. Thank you!!

[@TheCreditFrog]

Your situation is quite complex and because of that, it’ll be better to ask a a financial professional for help to see what’s the best in your situation. Your strategy sounds solid to me, but I’m not sure if you can Roth convert all $30k without getting taxed on some of those funds.

[@dollydarshan24]

@@TheCreditFrog Firstly, Thank you so much for your response ❤. I was also wondering with my situation how the IRS would ever know that 30k is after tax dollars except for me. You mentioned something about tax bill. Is it the 1099R or some other document? When do they usually send it?? I was wondering if my 8606 filings can offset those extra taxes if I do receive a bill?? Please advise.

[@dollydarshan24]

@@TheCreditFrog Also, can you advise if opening a new spousal IRA and contributing for both 2023 and 2024 in feb 2023, followed by immediate conversion of 13000 into Roth as soon as the funds settle will complicate taxes??? I understand Roth conversion will show up only in 2024 taxes but wanted to make sure if doing both years now will complicate the backdoor process?? Appreciate your inputs 🙏

[@TheCreditFrog]

@@dollydarshan24 As much as I'd like to help you, I am not a financial or tax professional so I don't want to give you any incorrect information. Your 1099R will be sent usually during Jan for the previous tax year. As I said before, your situation is complex enough that professional advice is recommended. Please contact a financial or tax professional, and you will have the answers to those questions!

[@dollydarshan24]

@@TheCreditFrog I understand. Will do. Appreciate your prompt response though 🙏

[@brad_rut07]

I wish I had found this video a few years ago! I made a mistake and accrued interest in my traditional before converting but still sent to the ROTH. I now have a balance of $4.25 in my traditional after sending over the $6,500. Is that okay?

[@TheCreditFrog]

Yup! Just Roth convert the rest. You will pay ordinary income tax on it.

[@cmli914]

This is a great video thanks ! question for you on how my previous 4 years’ contributions with my after tax dollars to my non-tax deductible Traditional IRA account which I also invested on several stocks and made some profits already to my Ruth IRA?

[@TheCreditFrog]

Thanks! I think your question is best answered by a financial professional! If you already have money in a Traditional IRA, then you may have to figure out a way how to Roth convert that in a strategic way if you want to do the backdoor Roth method!

[@giordanofabriciocittolinsa6781]

Can you explain the importance of transferring your money to the cash management account in December and only transferring the funds from CMA to the Roth accounts on January of the next year? Thanks

[@TheCreditFrog]

Sure! So this is personal preference, but I noticed that transferring money from an outside bank into Fidelity can sometimes take a while to clear. I would like the clearance times to be ASAP in the Trad IRA so i can immediately Roth convert when the money hits that account to minimize the amount of interest my contribution accrues in that account. Although transferring from a Fidelity CMA into a Trad IRA also has a clearance time, the clearance time is slightly faster by like a day. So I transfer money into the CMA first, then when the next year rolls over, the money is already in the Fidelity system, and I can perform my backdoor Roth IRA.

[@poolmilethirty2859]

Thank you so much for this demonstration Stan. Can you please tell me how to go about doing this if I contributed for the first time for 2023 and 2024 on March of 2024 and I still have not convert it to Roth. Obviously now it has accumulated dividends. I understand I'll be paying taxes on those dividends but can I go ahead and convert all now?

[@TheCreditFrog]

You could Roth convert you're entire Trad IRA to a Roth IRA, again, with the understanding that you'll pay ordinary income tax on the capital gains or dividends you've accrued so far.

[@poolmilethirty2859]

@@TheCreditFrog thank you