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Roth Conversion Confusion

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  • Roth Conversion Confusion

    I have recently opened up a Roth IRA and I think I was Confused on the process. Because the contribution limit is 6k per year, I took 6K from my savings and opened up a traditional IRA and rolled that over to my Roth account. After more reading and learning, it seems I can contribute as much as I want during the conversion process and I could have added more funds than 6k (I have about 60k worth of money I’d like to invest). Is this correct? And if so, is there any way to put more money into my Roth after the conversion process?

    Thanks,
    A struggling new DIY investor

  • #2
    If you’re under 50, you can contribute the lesser of earned income or $6,000 per year. You can make an additional $1,000 catch up contribution per year starting the year you turn 50. You also can contribute $6K per year (under 50) for your spouse, even if he or she doesn’t work outside the home.

    While there isn’t a conversion limit, you still are subject to an annual contribution limit. You also should pay taxes on the Roth conversion from taxable funds outside your IRAs.

    You say you have about $60K you want to invest. Have you maximized your contributions to all available workplace retirement plans?

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    • #3
      You just did a backdoor Roth contribution/conversion.

      (I assume you do not have other IRA money?)

      Probably stop there. But if you have money in a 401k, you can convert that.

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      • #4
        “it seems I can contribute as much as I want during the conversion process and I could have added more funds than 6k (I have about 60k worth of money I’d like to invest). Is this correct? ”
        Incorrect. Two separate processes. BD Roth contributions are after tax contributions. (your situation).

        Contributions are limited (stated above) and reported by tax year.
        Conversions are unlimited and are reported by calendar year.

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        • #5
          Originally posted by Hank View Post
          If you’re under 50, you can contribute the lesser of earned income or $6,000 per year. You can make an additional $1,000 catch up contribution per year starting the year you turn 50. You also can contribute $6K per year (under 50) for your spouse, even if he or she doesn’t work outside the home.

          While there isn’t a conversion limit, you still are subject to an annual contribution limit. You also should pay taxes on the Roth conversion from taxable funds outside your IRAs.

          You say you have about $60K you want to invest. Have you maximized your contributions to all available workplace retirement plans?
          i am maximally invested in my hospitals 403 (b) and 457 plans with a chunk of money sitting in my savings that is over what I need for emergency funds. I was confused about the Roth but it seems like I was correct initially that my conversion limit was 6k because it was not coming from a 401k. I guess I can just put that money into my VOO index fund.

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          • #6
            Originally posted by dademos04 View Post

            i am maximally invested in my hospitals 403 (b) and 457 plans with a chunk of money sitting in my savings that is over what I need for emergency funds. I was confused about the Roth but it seems like I was correct initially that my conversion limit was 6k because it was not coming from a 401k. I guess I can just put that money into my VOO index fund.
            Your post tax contribution is limited.
            Conversion is unlimited.

            IF you had an existing balance in a pretax account (403b etc) that was eligible to be rolled over, say that $50 k, you could roll it over and convert it. You would owe tax on the conversion. I only mention this because you likely run into this in your career. Conversions are unlimited. It is the contributions that are limited.
            Last edited by Tim; 06-21-2022, 12:29 PM.

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            • #7
              Originally posted by dademos04 View Post

              I was confused about the Roth but it seems like I was correct initially that my conversion limit was 6k because it was not coming from a 401k.
              No such thing as a conversion limit. You can convert as much as you want (but the tax hit could be significant).

              What you have to worry about is the contribution limit. There’s a limit to how much you can contribute to your IRA, a spousal IRA, a 401(k), a 403(b), a 457, an HSA, etc., each year.
              Last edited by Hank; 06-22-2022, 11:18 AM.

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