Backdoor Roth

[jfoxcpacfp]

PTM wrote:

I just put $5,500 into vanguard traditional IRA and waited a few days.  Now that I go to convert it, its worth $5,500.33.

So do I convert the whole amount, even though it is now “over the limit” by 33 cents,  Or Just convert $5,500 and leave 33 cents in the traditional account.

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Lithium is correct. However, you might want to check with your brokerage to see if you need to keep a balance in the account and, if so, how much. I believe Vanguard is ok with a zero balance, but they have made some changes that have affected our clients in the last couple of month, so double check. Some custodians will automatically close the account and it's a pain to have to open a new account each year.

[Lithium]

33 cents is just a rounding error.  Just put it all in the Roth.

[PTM]

I just put $5,500 into vanguard traditional IRA and waited a few days.  Now that I go to convert it, its worth $5,500.33.

So do I convert the whole amount, even though it is now "over the limit" by 33 cents,  Or Just convert $5,500 and leave 33 cents in the traditional account.

[PenguinMD]

I do Fidelity and leave it in cash and do the conversion right away. For you to do a clean conversion with non-deductible contribution you don't want any gains thus "clean" no tax. You want the gains AFTER conversion which you earn tax-free.

 

 

[Cytogal]

Thanks for the replies.  I use fidelity, and it has not asked me in the past to select a place for the contribution, it just listed it as "cash contribution".  I have not had any problems, so maybe I will just leave this be.  Thanks!

[jfoxcpacfp]

Cytogal wrote:

I have used backdoor roth for the past 2 years without a problem, but am wondering about one thing.  In WCI step by step backdoor roth post, he says that the money in the traditional IRA is put into a money market fund – “just place it into the Prime Money Market Fund to keep the math simple.” Do I need to do this step and place the contribution in something?  In the past, I did not.  I just put money into the account, then transferred to Roth a few days later.

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Unless you are putting your contribution into a plain bank account, you will either be required to make a choice or be defaulted into a MMA when you "put the money into the account" so no worries. If only everything with finances could be that simple :-)

[PhysicianOnFIRE]

I do what WCI does. It's the equivalent of cash (more or less). It sounds like you're doing the same thing. When you "put money" into the account, are you required to choose a fund, or can it be cash on the sidelines?

What he's recommending is to avoid a fund that will fluctuate. It's not a big deal if you do, but it's less than optimal to put in $5,500, then convert $5,400 or $5,600 due to market movement.

Best,

-PoF

 

 

[Cytogal]

I have used backdoor roth for the past 2 years without a problem, but am wondering about one thing.  In WCI step by step backdoor roth post, he says that the money in the traditional IRA is put into a money market fund - "just place it into the Prime Money Market Fund to keep the math simple." Do I need to do this step and place the contribution in something?  In the past, I did not.  I just put money into the account, then transferred to Roth a few days later.