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Learning, Sharing, and Teaching => Investor Alley => Topic started by: TheAnonOne on March 06, 2015, 12:52:08 PM

Title: How to do the backdoor-Roth?
Post by: TheAnonOne on March 06, 2015, 12:52:08 PM

Hello everyone!


I just opened my Traditional IRA with VANGUARD for myself and my Fiance and filled them with 11k each (2014/2015)

Do I just open a new roth IRA now and somehow move the funds to that? How does this work?

Thanks!

Title: Re: How to do the backdoor-Roth?
Post by: seattlecyclone on March 06, 2015, 12:59:05 PM

Quote from: TheAnonOne on March 06, 2015, 12:52:08 PM

Hello everyone!


I just opened my Traditional IRA with VANGUARD for myself and my Fiance and filled them with 11k each (2014/2015)

Do I just open a new roth IRA now and somehow move the funds to that? How does this work?

Thanks!

Yes, open a new Roth IRA account. When the site asks you where you want the money to come from, you can select the traditional IRA account.

Title: Re: How to do the backdoor-Roth?
Post by: zurich78 on March 07, 2015, 08:52:52 AM

Make sure you have no outstanding balances in TIRA accounts when you do the conversion (or maybe it is year end not sure).

If you do, you'll pay pro rata taxation on the conversion.

The way to do that is roll any tira funds in to a 401K.  Then you're good to go.

Title: Re: How to do the backdoor-Roth?
Post by: Indexer on March 07, 2015, 09:45:21 AM

Quote from: TheAnonOne on March 06, 2015, 12:52:08 PM

Hello everyone!


I just opened my Traditional IRA with VANGUARD for myself and my Fiance and filled them with 11k each (2014/2015)

Do I just open a new roth IRA now and somehow move the funds to that? How does this work?

Thanks!

I would open the Roth, but instead of doing the transfer yourself I would just call Vanguard and have them do it or at least walk you through it.  You want to make sure the conversion gets done right, and I know from calling them myself that they have a dedicated team just for Roth conversions. 


Also as noted above make sure you don't have any money sitting in pre tax IRAs like traditionals, Rollovers, SEPs, etc.  If you do then the IRS looks at the conversion on a pro rata basis.   If you have 5500 in a trad by itself all post tax money and you convert it to a Roth 0 is taxable.   However exact same situation with a separate 100k rollover IRA floating around and the conversion gets treated as 94.79%(100/105.5) pretax money, and $5213.27(.9479*5500) is taxed. 

Title: Re: How to do the backdoor-Roth?
Post by: retireatbirth on March 07, 2015, 09:50:46 AM

Here is a great how to: http://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html

Don't do this for the 2014 tax year, though, as you will be taxed on the conversion if you do so. You need to make the conversion prior to Dec. 31 to avoid the tax so do it for 2015.