Author Topic: Roth IRA Contribution vs backdoor Roth contribution--Any substantive difference?  (Read 583 times)

FuegoPronto

  • 5 O'Clock Shadow
  • *
  • Posts: 4
This year I am in the cut-off zone for a Roth IRA contribution where I am partially limited in what I can contribute. My annual income is hard to predict beyond a ballpark figure but luckily I stopped contributing to the Roth early enough that I don't think I'm going to have to deal with an over-contribution. I plan on just doing the backdoor IRA contribution for the rest of the $5500 sometime next month.

However, since I don't want to deal with stress of this next year--I over-contributed once a few years ago and it was a pain in the butt involving an amended tax return--I plan on just putting down $6000 straight into a non-deductible IRA as soon as I have the cash and then rolling over the entire thing at the end.

Is there any substantive difference, i.e. difference in financial results, between making a $6000 contribution on Jan. 1 to a Roth IRA, making a $3000 contribution on Jan. 1 to a Roth and a $3000 back-door in December or making the whole $6000 backdoor in December? For example, will the rollover be in-kind or will I have to sell the shares and then buy again? This is at Fidelity, and I don't have any traditional IRA's, only Roth.

MDM

  • Walrus Stache
  • *******
  • Posts: 9609
Is there any substantive difference, i.e. difference in financial results, between making a $6000 contribution on Jan. 1 to a Roth IRA, making a $3000 contribution on Jan. 1 to a Roth and a $3000 back-door in December or making the whole $6000 backdoor in December?
Or you could to the whole $6000 backdoor in the first week of January.

What do you plan to do with any money not put into an IRA on Jan. 1?

reeshau

  • Pencil Stache
  • ****
  • Posts: 618
  • Location: Dublin, Ireland
Generally speaking, people don't put a backdoor conversion contribution into any investments--leave it in cash for the 1 or 2 days it takes to rollover.

The substantive difference would be if you have any other traditional IRA accounts.  If so, then your rollover basis has to be counted across your IRA accounts, not just for the rollover account.  This could generate some taxes for you.

No worries if you only have 401k's pretax, though.

FuegoPronto

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Is there any substantive difference, i.e. difference in financial results, between making a $6000 contribution on Jan. 1 to a Roth IRA, making a $3000 contribution on Jan. 1 to a Roth and a $3000 back-door in December or making the whole $6000 backdoor in December?
Or you could to the whole $6000 backdoor in the first week of January.

What do you plan to do with any money not put into an IRA on Jan. 1?

Good point, thanks. I didn't think about just doing backdoor right away. Otherwise I would just be putting more money in taxable. I guess it makes sense to have any potential gains take place in the Roth then and avoid any distributions.

Generally speaking, people don't put a backdoor conversion contribution into any investments--leave it in cash for the 1 or 2 days it takes to rollover.

The substantive difference would be if you have any other traditional IRA accounts.  If so, then your rollover basis has to be counted across your IRA accounts, not just for the rollover account.  This could generate some taxes for you.

No worries if you only have 401k's pretax, though.

Thanks for the reply. I guess I'll just do the backdoor in January then.