Backdoor Roth

[Tykimeister]

Hello, I am fairly sure I will be earning more than the limit in 2022 to contribute to a ROTH. This is a first for me. I had a couple questions about how I should go about completing a backdoor ROTH conversion.

I want to get into the market now while it is down. But I am assuming I will need to place my contribution into a traditional IRA if I am very certain my income will be more than the 2022 limit? And at what point can I convert it into a ROTH?

Thank you!

 

[Dash man]

Hello, I am fairly sure I will be earning more than the limit in 2022 to contribute to a ROTH. This is a first for me. I had a couple questions about how I should go about completing a backdoor ROTH conversion.



I want to get into the market now while it is down. But I am assuming I will need to place my contribution into a traditional IRA if I am very certain my income will be more than the 2022 limit? And at what point can I convert it into a ROTH?



Thank you!

When I did backdoor Roth contributions I was able to do them the same day. I opened accounts for the traditional IRA and a Roth IRA, contributing to the tIRA. Then faxed (this was a few years ago) the conversion form to my brokerage. It was usually completed by the end of the day.
I suggest you call your brokerage firm and talk to them to see what their process is, or search for “backdoor Roth” on their website.

 

[38Chevy454]

I assume you already have a 401k/403b that has some balance equal or above your desired conversion amount? If so, just open the Roth, do the conversion once the Roth is open (should be essentially immediate if at same brokerage as your 401k/403b). You will need to pay taxes on the conversion, and you can't do that out of the 401k/403b money. But you don't have to pay the tax right at the same time as your conversion. So use/save some after tax cash and pay the tax.


It is usually easiest to just do a in-kind conversion. Although if you want to sell some and convert cash, then purchase different choice(s), you can do that. Selling in your 401k/403b is not going to create a taxable event. Just the conversion amount is what becomes taxable.

 

[SevenUp]

1. I am assuming I will need to place my contribution into a traditional IRA if I am very certain my income will be more than the 2022 limit?
2. And at what point can I convert it into a ROTH?

1. Yes, and you can do so even if you aren't at all certain about your 2022 income.
2. As soon as your brokerage allows.

Backdoor Roth - Bogleheads has a good description of what you need to consider.

401k/403b accounts have no effect on the backdoor Roth process. The main thing that can upset your plan is if you have a large non-Roth IRA balance on 31-Dec of the year you do the conversion step of the process. See that wiki article for more.