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When you hold traditional IRA money but want to do a backdoor Roth

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  • When you hold traditional IRA money but want to do a backdoor Roth

    I've heard you can try to roll your traditional IRA into a work sponsored 401k, etc.

    Could you also just backdoor the traditional IRA money (and subsequently pay taxes on this amount) in order to "rid yourself" of the traditional IRA in order to clear the way for future year's of easy backdoor conversions?

    My wife has ~$17,000 in traditional funds.  We will be doing annual backdoor conversions, so we need to figure out how to do this.  Since it's not too much, we could just do conversion on the $17,000 and pay the tax bill now?

    Am I missing something?  I guess most people don't see this as an option since they may have a TON more in Traditional?

  • #2
    That's not really a "backdoor;" it's just a plain old conversion. You'd add the converted amount to your 1040 (just follow the directions) and pay tax on that like it were income. Depending on your bracket, that could easily be upwards of $5,000 in taxes due. You sure you don't want to roll that into a 401(k)?

    As long as you do that this year, you can fire away. As long as the EOY value in pretax IRAs is zero, the (already-taxed) non-deductible contribution for the backdoor won't be double-taxed at conversion vis-à-vis the pro rata rule.

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    • #3
      Yes, one option of getting rid of existing traditional IRA funds is to convert and pay the tax bill up front.  Like DMFA said, the amount of tax owed will depend on your bracket.

      I think that most people are aware of converting and paying taxes up front.  But why would you want to pay taxes if you could avoid it?  I personally would reverse rollover those funds into your wife's 401k if allowed.  Sure it's a bit of a hassle, but any amount you save in taxes means more money left for investing and compounding.

      Just my opinion.

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