Ira backdoor

[Dpwyatt91]

Im sure this has been talked about but cant seem to find it. I will make to much to contribute to a roth ira thos year and was wondering the process of the conversion/backdoor . I don't have any traditional ira's right now. I'm not sure how long you have to wait once you fund the traditional ira to convert it. Thanks in advance for any responses!!

[dresden]

What that refers to is making post-tax contributions to your 401k and then rolling it over to a Roth IRA as soon as possible.  That largely depends on your company's policy.  Some allow in-service withdrawels at certain intervals.  Some only let you do this when you leave the company.

[stashing_it]

The previous comment is not correct.  The previous comment is referring to the "Mega Backdoor Roth"  in which you are funding a Roth 401k (post-tax 401k contribution) and later converting that into a roth ira.   That is a separate process from the "Backdoor Roth"

Here is a tutorial (one of many online) on how to do a backdoor roth
https://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html

I just did this on Vanguard.  I

• set up a traditional IRA
• funded it with the amount I choose, no more than the traditional IRA limit
• once that cleared (a couple days) I converted it to a Roth IRA using Vanguard's online form
• once that cleared (a couple days) I invested the money in some index funds

[Dpwyatt91]

Ok awesome. I had heard that you needed to wait a year or 6 months before you converted it. I only wish I new about this last year. Thanks!!

[dandarc]

Neither of the above posts is fully correct on the definitions.

Backdoor Roth IRA = non-deductible contribution to a traditional IRA, immediately convert to Roth IRA.  This gets you around Roth IRA income limits.

Mega Backdoor Roth = after-tax (NOT ROTH - there are 3 types of contributions you can make to a 401K) contributions to a traditional 401K, and rollover to Roth IRA as soon as possible.  This works best with in-service withdrawals also part of the 401K, but can be a net positive even if you have to wait until you leave to do the rollover.  This one is basically an almost ridiculous thing for those with 401Ks that allow it - not getting around any specific limit - just using the tax code / IRS interpretation of it to its fullest extent.

stashing_it is right on the Backdoor Roth IRA process.

[stashing_it]

thanks for correcting my mistakes

[Laura33]

Dandarc is correct.

I did a backdoor Roth last year - set it up with the same company I had my EF with in a money market account.  All I had to do was Day 1:  set up nondeductible IRA and fund from money market (so it cleared immediately).  Day 2:  convert to a Roth.  Boom, done.