Backdoor Roth strategies

[VaCPA]

Do you guys employ any particular strategies when backdooring money into your Roth, like market timing? I'm assuming most people just put all the money in at once each year and immediately convert, since it seems easier but I don't even know if you can do multiple conversions throughout the year. But maybe you can and people dollar cost avg. I generally just put it all in towards the end of the year, because that's when I think about it and I don't really pay attention to the market all that much anyways. If you had to choose between putting it in after a big runup or after a big drop, you'd probably want to do it after a drop though. The reason I've been thinking about it this year is the market seems a bit overheated right now. I know we had some big drops earlier this year but it seems like the market bounced back for the most part.

I know I know market timing bad. Just curious what other people think about in regards to maximizing the value of their backdoor Roths, or if they even think about it at all.

[jacoavluha]

$5,500 to tIRA Jan 1, rollover to Roth IRA Jan 2.

[FlorenG]

The general wisdom is as soon as you maximize your 401(k), maximize the IRA and if you can't do traditional or don't want to, then do the backdoor Roth. The sooner in the year the better since 2 of every 3 years you'll have gains as the year progresses.

Since we are talking about 'only' $5,500 even if you were the one magical person who can time the market (you are not), you would not make all that much out of it so I guess the one thing that matters is just save the money, everything else is really secondary so don't overthink it.

You'll find lots of literature against trying to time the market, the message is that the odds are (a little) more favorable if you invest whatever money you save as soon as you have it. This piece from the stock series is as good as any other:

http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/

[SeattleCPA]

Two comments about this:

First, I watched a tax attorney do this when the great recession occurred and the value of his 401(k) went from $1M to $400K. He figured he'd pay taxes on the $400K and happily bet stock market would recover.

Second, if you happen to be self-employed note that the new Sec. 199A deduction provides potentially lots of space to shelter Roth conversion income: https://evergreensmallbusiness.com/sec-199a-changes-retirement-planning/

[talltexan]

That...seems really smart.

[jacoavluha]

Two comments about this:

First, I watched a tax attorney do this when the great recession occurred and the value of his 401(k) went from $1M to $400K. He figured he'd pay taxes on the $400K and happily bet stock market would recover.

Of course, a strategic-market timing taxable Roth conversion such as this is a different thing entirely than the yearly $5,500 (or $6,500) backdoor Roth, a non-taxable event, and the question of whether to dollar cost average or try to market time the conversion.

[erutio]

$5,500 to tIRA Jan 1, rollover to Roth IRA Jan 2.

How do you do the rollover the next day?  Neither vanguard or fidelity let you move those funds for about half a week until the initial tIRA transfer clears.

[jacoavluha]

I rollover the next day at Vanguard. Never a problem.

In 2017, I contributed to my tIRA Jan 3 (Jan 2 may have been an observed holiday) and converted to Roth Jan 4. After the conversion, Vanguard also sent the one day's worth of money market earnings ($0.11) to the Roth. Those were bonus tax free earnings, since cents get rounded off (downward in this case) on the Form 8606.

In 2018, I contributed Jan 1 and converted Jan 2.

My wife did the same thing.

I do all this online.

[VaCPA]

Makes sense to not overthink it. Just was curious how much or how little thought others put into it. Thx for the replies