Author Topic: Backdoor vs "regular" Roth Conversions  (Read 520 times)

TG Park

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Backdoor vs "regular" Roth Conversions
« on: December 05, 2023, 11:15:41 AM »
DW and I each maxed out our tIRA's in January of this year, then proceeded to sell our house hack and move out of state for a new job. Large capital gains from that sale plus higher income at her new job (and 30k in extra 1099 income that she negotiated) have pushed us way past the point the deduction point for the tIRA's. Our CPA advised that we call Vanguard and have them do a back door roth conversion with the tIRA money we put in this year, but when I call they don't want to call it a "back door", but just a "roth conversion".

My questions are: This is just semantics, right? Functionally we are talking about the same thing? If I want to do this online through Vanguard's website (rather than calling them) it wouldn't be any different than the regular roth conversions I've done online in the past, correct? The money we backdoor roth this year will behave just like a regular conversion in that gains won't be accessible for 5 years, correct?

Thanks for being a reliable, knowledgeable community!

MDM

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Re: Backdoor vs "regular" Roth Conversions
« Reply #1 on: December 05, 2023, 11:15:44 PM »
This is just semantics, right?
Yes and no. 
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Functionally we are talking about the same thing?
Yes it will be a conversion of traditional funds to Roth, but there will be differences.
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If I want to do this online through Vanguard's website (rather than calling them) it wouldn't be any different than the regular roth conversions I've done online in the past, correct?
The conversion mechanics will be the same, but...
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The money we backdoor roth this year will behave just like a regular conversion in that gains won't be accessible for 5 years, correct?
No.

Herein lies the difference.  In the Backdoor Roth process (you should read that wiki if you haven't) there are two active steps:
1) Make a traditional contribution
2) Convert that to Roth

The differences come in the tax treatment and documentation:
1) You don't deduct the traditional contribution
2) You do file form 8606, and you should understand that form to see if there will be any "pro-rata" effects (due to any pre-tax amount in any non-Roth IRA at the end of the year) before you do the conversion.
3) Any non-taxable amount of the conversion may be withdrawn from the Roth without tax or penalty when you reach that point in Roth distribution ordering.  See the "Conversions, nontaxable portion" row in the Treatment of distributions summarized in table form.

FrugalToque

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Re: Backdoor vs "regular" Roth Conversions
« Reply #2 on: December 06, 2023, 03:43:03 AM »
Locking this topic.

Please don't start a topic in two different areas.

https://forum.mrmoneymustache.com/taxes/back-door-roth-question-132981/msg3206501/#msg3206501