Backdoor Roth IRA Conversion EXPLAINED STEP BY STEP (how to do it). When done correctly, the Backdoor Roth IRA strategy can be a great way to get more money into your after tax Roth IRA. However, very few people talk about or understand the Aggregate Rule (Pro Rata Rule) in regards to actually being able to do a proper back door roth ira conversion by converting funds from your Traditional IRA to your Roth IRA through the Backdoor Roth IRA method. In this video we’ll discuss WHAT is a Backdoor Roth IRA, WHO should consider the Back Door Roth IRA, WHY it is stupid to do the Roth IRA (until you’re ready), the Aggregate Rule in detail, and how to do the Back Door Roth IRA correctly.
Here’s my other video about Roth Conversions:
Tax Bracket Management:
2021 Tax Brackets & Retirement Limits:
IRS From 8606 (for 2020):
IRS FAQ’s about Rollovers & Roth Conversions:
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OTHER VIDEOS YOU MAY LIKE
Tax Rates: Marginal vs Effective Tax Rates:
Tax Bracket Management:
401(k) – Roth 401k vs Pre-Tax 401k:
401(k) – Plans No Longer Make Much Sense:
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Timestamps / Chapters:
0:00 – Intro
0:51 – What is it?
1:35 – Numbers & Stats
3:19 – Why you can’t do it
6:08 – Aggregate Rule
8:10 – How to do it
ABOUT ME 👇
I’ve been involved in people’s financial decisions for 15+ years (7 yrs Real Estate experience & 8+ yrs as a former Financial Advisor)…I now bring the financial successes, mistakes, failures, and best financial habits/tips to you through these videos.
My mission is to bring Financial Awareness to the forefront of your daily decisions so you can: improve your quality of life, increase your net worth, and grow upon your financial literacy. My videos are a reflection of my real-world experience as a real estate investor, stock market investor, student of finance, entrepreneur, and of course…my experience as a Former Financial Advisor.
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DISCLAIMER: I am not a financial adviser or a certified public accountant. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
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LEARN MORE ABOUT: IRA Accounts
CONVERT IRA TO GOLD: Gold IRA Account
CONVERT IRA TO SILVER: Silver IRA Account
REVEALED: Best Gold Backed IRA
Roth IRA Conversions EXPLAINED: https://youtu.be/Hzq9bcFnY0Q
Tax Bracket Management: https://youtu.be/L6lMJd2dXn0
I have a Roth 401k. Am I able to transfer those funds to a ROTH IRA?
Thanks for the great stuff and for making it simple to understand. So I cannot put money into ROTH IRA anymore and have only one tax-deferred account which is a 401k. However, I had to open a Traditional IRA this year to recharacterize the excess contribution I made into ROTH IRA and then move it back to the ROTH IRA.
So my question is in order to save money for retirement, can I use the same way this year but instead of putting money to ROTH IRA, I will put it in Traditional IRA and then move it to ROTH ORA after a few days, right? And to add more clarity, I don't have any other tax-deferred IRA accounts. I just have ROTH IRA (after-tax, non-deductible) and a Traditional IRA (after-tax, non-deductible).
My wife and I file jointly and she also has a similar situation. Please advise. Thanks.
Thanks for posting this video! I have a situation where I made a $12,000(for the years 2021 as well as 2022) non-deductible contribution to a traditional IRA, but waited a few weeks to make the transfer to my Roth IRA and have since earned $0.18 in dividend; therefore the total balance in my traditional IRA is now $12,000.18. At this point can I transfer the entire amount into my Roth IRA or can I only transfer $12,000? What are the options I have here? What should I do about the $0.18? If I can only transfer the $12,000 how does the pro-rata rule impact me for the small amount left? Appreciate any help!
So if we do not have any existing IRAs of any kind and start contributing and rolling over to a Roth it’s okay, it only trips you up if you have pretax money sitting in a IRA currently?
Thanks for the video! However, don't you get a tax break when you convert your 94K after the 6K? you should be tax on 94/100*94=88.36K instead of 94K? Am I wrong on this assumption?
Found this video as a recommendation. Great content and perfect timing. I'm doing my taxes and I was surprised when the system told me that I exceeded contribution limits and i need to reverse the contribution or pay the 6% penalty. I just opened a Roth IRA and contributed $6K towards 2021. Do I need to open a traditional IRA then move the $6K there then move it again to the Roth? Or does the aggregate rule also apply even if I only have the $6K? Thank you
Great Advice! I currently have a Rollover IRA and cannot contribute to 2021 Roth IRA. Can I contribute nondeductible dollars in a 2021 Traditional IRA and backdoor it after I convert my Rollover IRA to a Roth IRA later this 2022 year?
Great video! I opened a new traditional IRA account, contributed after tax money and converted it over to Roth. I still have my rollover IRA but it is a separate account
I understand that the CONTRIBUTION limit to a Roth IRA is $6,000/year w/ an income cap.
I also understand that there are no limitations ($ amount or actual number of) on CONVERSIONS from pre-tax Traditional CONTRIBUTIONS to a Roth other than one's ability to cover that tax burden.
But, what are the limitations on backdoor Roth CONVERSIONS? Can I backdoor Roth convert more that $6,000/year? Can I execute more than one backdoor Roth conversion/year?
Thanks in advance.
Great video! I have a question about my 403b and a back door Roth IRA. I have an old 403b through an employer at T Rowe Price. It is sitting not being invested in at the moment because my new job does not offer any 403b or 401k option. Can I still utilize a back door Roth IRA even with the 403b sitting? Or is that old 403b considered a rollover now? Thanks for any help! Subscribed!
Great video! My parents don't have any income but they are my dependents. Can they open Roth IRA and I put maximum money in their Roth IRA accounts in addition to maximize my Roth account? Or they have to have income to contribute to Roth IRA?
Once you have created the Roth IRA account and made the initial 6k , how does this process looks going forward in the subsequent years . Do you do the same to bring 6k (allowed limit) every year?
We have Roth 401k. Post taxed. Can we do a back door Roth IRA with O IRA assets. Married filled jointly over limit.
Fantastic video, glad to learn a little more about Tax Form 8606, fist time hearing about that part.
I have a TSP not a 401k. I max it out traditional and make around $200+ married. I'm looking into this strategy now that I have paid off my Mortgage and have some extra cash sitting around.
Thanks for the video! Appreciate the math
Great video! I'm about to switch jobs and from the face value it looked very lucrative to move 401k to traditional IRA for the simplicity. Thanks to your video I now know how tax intensive it'll be if i did that! Probably need to watch more of your videos to understand this better and make right decisions before I switch jobs (in about a month)
Nice video! It covered subjects in more detail than most of the articles and other videos I have seen on this subject. Could you please help with my question?
I started a backdoor Roth IRA in 2020, and also have a trad IRA with a 0 balance (only used for contributions that get backdoored). I recently asked my 401k provider to initiate a 401k rollover— they are sending me two checks, one for the pretax balance, the other for the Roth 401k balance. I had planned to send the checks to the brokerage that handles my IRAs), directing them to rollover each check into the respective trad and Roth IRAs. Can you explain if this is a bad idea because it will mess up my future backdoor Roth IRA conversions? I already contributed to my backdoor Roth IRA for this year.
The other option is maybe I could just rollover the Roth 401k to my Roth IRA, but send the pretax 401k dollars to my current employer’s 401k plan. That way, my traditional IRA balance will be 0, so I won’t be affected my the pro rata rule. Appreciate your feedback.
Great content
Can you also transfer all your Traditonal, SEP, and or Simple IRAs into a solo 401k instead of transferring it to employer? (Referring to step 1)
You're saying the $5,640 is being taxed again??
Isn't the idea, that they are only letting you account for your non-deductible contributions proportionately to your total accounts value?
Thus you still have $5,640 of non-deductible contributions available to you in the future and it will not be taxed. Thus, you are NOT being taxed again, but simply paying tax on the proportionate amount that is pre-taxed contributions being converted.
They basically wanted to stop people from converting only their non-deductible portion and changed the rules so you would have to pay some tax.
Must one do all $6000 in one conversion? Or can you do several conversions that sum up to $6000? for example 3 conversions of $2000 each
Great video, it addressed a lot of issues that many references do not. I am pretty sure Roth IRA is good for me (above income threshold, only 4% of my IRA money is pretax, maxing 403b/Roth 403b). My main concern is that I have a decent amount of returns on my IRA (6.8k on top of 20.7k contributions). It seems worth it to me to pay the tax now since it'll be much less than in 20-30 years. Does that make sense?
Lol, good video
You mentioned at the beginning that if a couple filing jointly make under $200,000 per year they can contribute $6,000 plus $6,000 for the spouse assuming said spouse is working and makes over $6,000 annually. If they're filing jointly why would it matter if the spouse made earned income? Wouldn't he/she be able to contribute under a spousal IRA regardless of employment status as long as one of them were working and making over $12,000 per year?
Great video. Thanks for sharing this information.
I already have a pre-tax traditional IRA with a cash balance. Would I be able to setup a backdoor Roth IRA if I open a new traditional account to make the deposit and transfer?