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Delayed backdoor Roth conversion

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  • Delayed backdoor Roth conversion

    Super dumb question. Say I contribute $6k to my traditional IRA and it sits in a total market fund. I then do a backdoor conversion to Roth the next week but my original contribution has grown from $6k to $6,200. Is this Ok? Do I pay a tax or penalty? Or Will I be only allowed to convert $6k of it and the remaining $200 has to stay in traditional IRA?

  • #2
    You will want to convert 100% of the balance with the amount > $6000 taxable. If you only convert $6000, there will be a prorata conversion with the vast majority of the earnings taxable anyway.

    Leaving a balance of mostly non-deductible basis. Which if the BBB passes as proposed, can not be converted in the future.


    • #3
      convert all. in your scenario you would pay your marginal tax rate on $200 only. no penalty as this is a conversion


      • #4
        You should convert it all. You will owe taxes on the $200 worth of gains. If the Backdoor Roth remains a viable strategy in the future, remember next time that you do NOT want to put the money you deposit into your traditional IRA into ANYTHING other than a money market account. That way you will not make any significant gains you will owe taxes on before you carry out the conversion. This is the one situation where making gains is not good!
        Last edited by artemis; 12-10-2021, 07:35 AM.


        • #5
          I have 401k and cannot deduct traditional IRA. So I am assuming all of the $6200 could be converted without any tax or penalty, correct?


          • #6
            you will pay tax (but no penalty) on $200 at your marginal rate. the most you can contribute to an IRA is $6k. But the amount you can convert is limitless.


            • #7
              I see. Makes sense now. Thanks!