The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: FIPharm on September 30, 2018, 09:01:38 AM

Title: Backdoor Roth IRA question
Post by: FIPharm on September 30, 2018, 09:01:38 AM
Hello fellow MMMs,

Quick question - I'll be performing a Backdoor Roth IRA in 2019 and I was wondering if the conversion from Traditional IRA to Roth IRA ($5,500) applies to the Roth Conversion Ladder method.

Is it characterized as a Roth conversion? and will I be able withdraw this money/conversion after 5 years waiting period tax-free and penalty-free?

Thank you for your time and consideration,
E
Title: Re: Backdoor Roth IRA question
Post by: secondcor521 on September 30, 2018, 09:48:10 AM
Yes.
Title: Re: Backdoor Roth IRA question
Post by: terran on September 30, 2018, 11:06:03 AM
Since the $5500 will be a non-taxable conversion you could withdraw it immediately and pay neither tax nor penalty. Any gains you have in traditional before conversion (which you will pay tax on when you convert) would have a penalty, but no tax until you wait five years. Any gains you have in Roth after you convert would have both penalty and tax until you're 59.5.

A Roth conversion ladder is a little different in that the entire conversion is taxable, so you pay a penalty, but no tax on the entire conversion unless you wait 5 years.