Wrapping up my 2023 Extension this morning... I'm still waiting for a K1 so, like every year it's an extension, but I digress...1st time looking at a backdoor Roth situation.

I get to the IRA portion of the Q&A with the H&R Block software I use. It lets me know that I'm over the limit for a Roth IRA and then that I cannot deduct my Traditional IRA contribution.

So is it as simple as going ahead and contributing to the Traditional IRA and then having my broker move the funds from the IRA to the Roth IRA account? Anything else I need to do?

EDIT... Looks like since I have a traditional IRA already with a decently substantial sum, I'll be subject to the Pro-Rata rule. Both my Roth IRA and traditional IRA have respective funds from a previous employer 401(k) plan. I don't think I want to recharacterize that account, especially if it requires moving it from it's current location.

In reply to Kenneth_2003 On the transaction end, yes, it's that simple. However, the IRA you are using for the rollover must be the only IRA that you have. If you have any others IRAs (like an old 401k or 403b rollover), you will be taxed again on your contribution.

As far as filing your return goes, I always use TurboTax, and there is a specific way to do this correctly. It was not obvious on TT and I had to search for it every year to do it right. I always knew when I did it wrong because it would affect my refund/what I owe. When done correctly, it's a zero sum transaction.

In reply to Kenneth_2003 If you already have an IRA, DO NOT do the backdoor Roth.

Look into a mega backdoor Roth through your current 401k (if your plan allows it) to get that contribution in.

In reply to TXTransplant My current 401(k) isn't that good. It's managed through our payroll administrator and the fees are pretty high and the fund selection isn't the greatest. I participate with new money but I don't want to roll other money into it.

I'm better off keeping the funds in the IRA. Even though that means foregoing the Backdoor.

Thanks. Looks like the Backdoor isn't for me.

In reply to Kenneth_2003 Mega backdoor Roth wouldn't mean rolling over any money into your current 401k.

It involves making after tax contributions to your 401k. If your plan allows it, you then make those after tax contributions, take an in-plan distribution, and roll them over to a Roth account (separate from your existing Roth). Your plan administrator does all of this "behind the scenes". You can't just make an after tax contribution, though. You have to talk to your administrator and specify that you want the mega backdoor option so they set it up and track it correctly.

Basically, you are just contributing more to your 401k, but the mega backdoor portion grows tax free. Since you can't do the backdoor Roth, this would be an alternative to still inventing those $ and getting the tax advantages. You can actually invest more than that, but if you don't really like your 401k, then I would just limit it to what you would have put in your existing Roth.

IRS allows for a total of $69k into your 401k (&76,500 if you are 50 and over), but not all of that is tax-deferred (only the first $23k is).

The catch is, your plan has to allow the in-plan distributions. Also I think you have to be maxing out your pre-tax contributions. If you are not, I don't think you can do the mega backdoor Roth.

In reply to TXTransplant You wouldn't really be "taxed again"... The majority of your Roth conversation would be money that has never been taxed (the pro rata portion coming from tax deferred roll over IRA) and that portion would be taxed for the first time.

In reply to permabull Whatever annual contribution you roll through the existing IRA to do the backdoor will be recognized/assessed as an untaxed/pre-tax IRA contribution when you file your tax return for the year. It will count as taxable income.

Now, you will get those taxes back…but not until you start taking distributions, and they prorate the return of the extra tax. So it will basically take ridiculously long to recover the extra taxes you pay now.