First Roth Conversion (Fidelity)

[imjustawarrior]

The big issue with Roth Conversions though is that the calculation techniques described by OP don't look beyond this year. Roth Conversions should look at things holistically over your lifetime and take your heirs' tax situation into account as best you can. With a large enough tax deferred balance and still being younger than the age when IRMAA kicks in, the optimum Roth Conversion this year might well be larger than the start of NIIT.

I did not state how I determined that going up to the NIIT threshold is the correct number for this year. I consider that outside the scope of this thread. I do appreciate your concern that I take in a multi-year/lifetime perspective when calculating Roth conversion strategy. I do have a long term overarching strategy.

 

[imjustawarrior]

FYI if you want to do withholding for a Roth IRA conversion, this is not possible to do online. A call to Fidelity is required.

Thank you for the heads up. I have not played with that yet. Good to know that if I can't find how to specify tax withholding it is because it is not there and I need to call.

 

[Mark1]

I do not have any post tax money in my 401K. A backdoor Roth is a two step process:
1. non-deductible IRA contribution
2. convert the IRA to a Roth

Earned income is required for step 1. There is a pro-rata rule for Roth conversions. Backdoor Roth conversions are cleaner if the IRA is at $0 at the end of the year.

Yup, got it.

I only ask, as at Megacorp's 10 years ago we could put in post-tax money and then back door it into Roth IRA with no tax consequence. Almost no one knew about this feature. Thought I would ask. Thanks..

 

[imjustawarrior]

Yup, got it.

I only ask, as at Megacorp's 10 years ago we could put in post-tax money and then back door it into Roth IRA with no tax consequence. Almost no one knew about this feature. Thought I would ask. Thanks..

I wish my megacorp would have offered it. I even asked them to consider adding it. I sent them articles about it. I think it went right over their heads.

I think that is usually referred to as a Mega-Backdoor Roth to distinguish it from a Backdoor Roth.

 

[Slim11]

I started doing this last year. The transfer from my 457 to a newly set up IRA took a little bit. This is dependent on the place it comes from and there relationship to fedeility. This took a week. After the funds were settled I transfered an amount to my newly set up Roth ira. This went in in a day or two and was done online. This year's I transfered stocks, and a cd over from the IRA to the Roth. It again took a day or two. I let the accountant deal with the taxes at the end of rhe year. I was surprised they let me more a partial CD over. I asked my advisor and they said if it wasnt allowed it wouldnt have gone through. But its as easy as transfering from one account to the other.

 

[imjustawarrior]

This afternoon I went to play with the interface to initiate a rollover from the 401K. The website blocked me because I have outstanding exchanges in my 401K. I did some rebalancing this weekend. I'm hoping that I can initiate the rollover tomorrow.

 

[RetiredHappy]

I probably missed the information, did you convert $ or stock positions from IRA to Roth?

 

[imjustawarrior]

I probably missed the information, did you convert $ or stock positions from IRA to Roth?

I have not done it yet. My 401K has CITs which must be cashed out when I rollover to the IRA; therefore, I will move cash from IRA to Roth.

 

[jazz4cash]

I do not have any post tax money in my 401K. A backdoor Roth is a two step process:
1. non-deductible IRA contribution
2. convert the IRA to a Roth

Earned income is required for step 1. There is a pro-rata rule for Roth conversions. Backdoor Roth conversions are cleaner if the IRA is at $0 at the end of the year.

I roll 401k funds into tIRA in lieu of step 1. Then I convert from tIRA to Roth. I guess it’s not technically a backdoor conversion but it supports much larger conversions since there is no earned income requirement or limitation.

 

[imjustawarrior]

I roll 401k funds into tIRA in lieu of step 1. Then I convert from tIRA to Roth. I guess it’s not technically a backdoor conversion but it supports much larger conversions since there is no earned income requirement or limitation.

If you look at post #1, that is what I'm doing and is the focus of the thread.

 

[somber]

I saw that the OP will deposit the 60-day rollover check, which sounds good. Someone upthread mentioned "mailing a check". I no longer mail checks. Checks are unsecure, and too many checks are being stolen from the mail these days. So for anyone contemplating this, I recommend either deposit the check via your cellphone camera, or find a local Fidelity office and hand the physical check to a Fidelity employee.

 

[TheWizard]

I have no funds at Fidelity anymore.
For comparison, here's how the same process works at TIAA and Vanguard.

My employer 403(b) is at TIAA and for various reasons, I'm leaving most of it there for now.
Note: I did do a backdoor Roth conversion back in 2016, but no longer have earned income so that's a non issue now.

After completing my RMD with TIAA for the year last month, I had their rep send me a link to their online form to do an external rollover.
I filled out the form to transfer $70,000 to my Vanguard tIRA and submitted it online.

The next day it got processed and I assume they mailed a paper check to Vanguard in El Paso.
A few days later, the $70k was in my tIRA, about six days elapsed.

And this year, Vanguard allowed me to buy funds with that $70 immediately. Last year, they put a seven day hold on the check from TIAA. No idea what changed this year.

Sometime early next month, I'll have a good idea where my AGI for the year is approximately and will do a small conversion on the Vanguard website from tIRA to RIRA. I'll likely do an in-kind conversion: N shares of XYZ ETF.
I'll do this around 3:30pm EST and should be able to convert within $100 of my target.

Taxes will be paid from my checking account...

 

[imjustawarrior]

I just went into Fidelity Netbenefits to initiate the rollover from my 401K to my IRA. My existing IRA at Fidelity, which I use for backdoor Roth conversions, cannot accept rollovers. It must be a rollover IRA. The rollover process in Netbenefits said that it would allow me to open a rollover IRA after I request the 401K rollover. It was easy to walk through all the screens and options. After I submitted the rollover, it took me directly to a screen to open a rollover IRA. Everything was already filled out. I just had to submit the application for the rollover IRA. It opened immediately.

Now, I wait to see when the $100k shows up in the new IRA.

I was able to go into my Fidelity account and see the new IRA. I renamed the account and put it in the same container as my other Fidelity accounts.

So far, so good.

 

[G POP]

There’s no reason the 401K to IRA shouldn’t be completed within a day, if your 401K and IRA are at Fidelity and most of your holdings are Fidelity funds.

Converted my 401K (non Fidelity) to Fidelity IRA in 48 hours.

 

[G POP]

I have TSP (401K), Fidelity IRA and Fidelity ROTH. When I covert IRA to ROTH I will send a check directly to IRS for taxes (from MM account). Seems like you are complicating this process. My conversion from TSP to Fidelity IRA should take no more than 96 hours.

 

[Midpack]

I have done Roth conversions many years with Fidelity using the online process with no issues.

Nothing at all against Fidelity, but I am surprised - or I'm reading the OP wrong. I have done partial Roth conversions from our tIRAs, usually twice a year every year, since 2019 with Vanguard with no issues and no fees ($20?). All have been done within 1-2 business days. I don't withhold any taxes though and the conversions have been 'in-kind', maybe that makes a difference for some reason? And I didn't understand why physical checks were required.

 

[imjustawarrior]

I have TSP (401K), Fidelity IRA and Fidelity ROTH. When I covert IRA to ROTH I will send a check directly to IRS for taxes (from MM account). Seems like you are complicating this process. My conversion from TSP to Fidelity IRA should take no more than 96 hours.

How am I complicating the process? If I used your method, I would have to mail a check to IRS and a check to Colorado. That is 2 checks. My method only requires 1 check, which I can mobile deposit.

Your steps:
Conversion from TSP to IRA
Convert IRA to Roth
Mail check to IRS

My steps:
Rollover 401k to IRA
Convert IRA to Roth
Mobile deposit check to Roth

You are making an estimated tax payment, which has a lot of potential pitfalls. I am doing withholding, which is a very robust method to pay taxes.

 

[imjustawarrior]

Nothing at all against Fidelity, but I am surprised - or I'm reading the OP wrong. I have done partial Roth conversions from our tIRAs, usually twice a year, since 2019 with Vanguard with no issues and no fees ($20?). All have been done within 1-2 business days. I don't withhold any taxes though, maybe that makes a difference for some reason?

The $20 fee is imposed by the 401k to do a partial rollover. The plan documents says that is the fee. When I did the rollover today, I did not see any mention of a fee.

If you re-read the OP, you will see I am doing much more than a Roth conversion from an IRA.

 

[imjustawarrior]

I don't withhold any taxes though and the conversions have been 'in-kind', maybe that makes a difference for some reason? And I didn't understand why physical checks were required.

I am using withholding from the Roth conversion to pay my taxes for the year. I want all the the $100k to show up in the Roth despite the withholding for taxes. This is accomplished by doing the $20k withholding for taxes ($12k fed, $8k Co), and then do a 60-day rollover into the Roth for the $20k.

This gets my taxes paid by withholdings, which do not have the restrictions that estimated taxes impose. The full $100k makes its way to the Roth. $20k goes to Feds/Co for taxes, and my taxable account is $20k lighter. It is like I did the $100k Roth conversion and paid taxes out of the taxable account, which would be in the form of estimated tax payment. Instead, I paid using withholding.

The check is needed for the 60-day rollover. A 60-day rollover is an indirect conversion. I could instead call Fidelity and have them take the money from my taxable account, but I am trying to do this without making calls or mailing anything in.

 

[imjustawarrior]

The $100k showed up in my rollover IRA over night, but it is still pending. It should be available to convert tomorrow.

I spoke with a Fidelity rep this morning because to withhold taxes on Roth conversion one must use a rep as someone told me up thread. I am modifying my plans. I will call a rep to do the Roth conversion and during the same call do the 60-day rollover from CMA to Roth. I plan on doing this tomorrow.

The Fidelity reps are really nice and helpful. They keep quizzing me about what I am doing to make sure I'm not screwing up. It is kind of getting annoying. I need to find the magic words to get them to just do what I ask.

 

[Al18]

Good update. The Fidelity reps can view the process on their end and make sure it goes smoothly, with no unintended consequences.

 

[imjustawarrior]

Just checked my rollover IRA. It says the money has settled. Tomorrow I will call to do the conversion and the 60-day rollover. Everything is going quickly with no issues so far. Tomorrow will be the big day.

 

[imjustawarrior]

This morning I called Fidelity to do the Roth conversion and the 60-day rollover. It took 20 minutes on the phone, and everything went smoothly. It took a little longer because the rep added beneficiaries for the new rollover IRA and I had some questions. The rep was very friendly, knowledgeable, and proficient.

I converted $100k from rollover IRA to Roth
I withheld $12k for federal taxes
I withheld $8k for Co state taxes
I did the 60-day rollover of $20k from CMA to Roth

The entire $100k is in the Roth. It is fully settled. I can trade or withdraw the $100k immediately. Later today I will rebalance my portfolio.

 

[imjustawarrior]

I placed a limit order to buy $100k worth of VTI in my Roth. The order just filled.

I'll log in tomorrow and give everything the once over to make sure things look correct.

 

[somber]

Thank you for detailing the steps you've taken. I have been planning to do this in 2026 (convert from 401k Fidelity Netbenefits, withhold tax, and backfill via 60-day rollover), and I'll keep this thread bookmarked to use as a guide.