Hi MMM!!
I am getting ready to make a backdoor Roth conversion for the first time in 2016. I am following the instructions in
https://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html. This was recommended on Bogleheads.
I have a new Fidelity Individual 401k account ready to go. This is the destination for "hiding" my existing individual 401k, traditional IRA, and SEP-IRA accounts (see step #1 in the link above).
Here are my current Vanguard traditional IRA/401k accounts:
- $55,823 in Traditional IRA account
- $1,495 in SEP-IRA account
- $0 in individual 401k account (already moved to Fidelity)
Of the $55,823 in the Traditional IRA,
- $50,323 is 401k and 403b rollovers from old employers, and
- $5,500 is a non-deductible contribution from 2015. I have a Form 8606 from 2015 showing this amount in Part 1.
If I understand step #1 correctly,
- I need to transfer the $50,323 + $1,495 to the Fidelity 401k, since these are DEDUCTIBLE, PRE-TAX contributions.
- Then, the $5,500 stays in the Traditional IRA account since that is NON-DEDUCTIBLE money.
Questions:
- Is this indeed what I need to do to prepare for a Backdoor Roth contribution for 2016?
- If so, what happens to the $5,500 that will remain in the Traditional IRA account? Do I need to transfer this to the Roth IRA account and just accept the fact I need to pay taxes on it?
- I want to make a $5,500 non-deductible Traditional IRA contribution for 2016 and then transfer that amount into my Roth IRA. If I don't transfer the existing $5,500 to the Roth IRA before making my 2016 contribution, how will the existing $5,500 balance affect the Backdoor Roth process? i.e. for a few days I will have $11,000 in that Traditional IRA account.
I think am 80% of the way there in understanding this, but I hope you all can help me get to 100% so I don't screw this up and pay taxes I could've avoided paying.
Thanks a lot for any advice.
