Validate my backdoor Roth plan
AI gave me an idea and Fidelity has given me mixed feedback, so I am looking for help. I would like to initiate a backdoor Roth, adding $7500 into my existing traditional IRA, and then pretty quickly calling up the company it’s with and rolling it into my…
AI gave me an idea and Fidelity has given me mixed feedback, so I am looking for help. I would like to initiate a backdoor Roth, adding $7500 into my existing traditional IRA, and then pretty quickly calling up the company it’s with and rolling it into my Roth IRA. I make $200+k. I have a traditional/rollover IRA from a prior job and I never did anything with it. So it has tripled in value, now at 150k. AI says I should roll that over into a 403b I have with my current employer, effectively emptying the traditional IRA back down to zero, then imitate my backdoor Roth plans. AI warns that skipping the step of emptying it out first would mean everything I attempt to roll out of it would be heavily taxed. Fidelity first said skipping that step wasn’t needed. Another call with another guy said it was reasonable, but then said I should check with a tax guy about the $7500 backdoor roth component. Neither seemed to fully grasp my plan. I already max out my 457b and 403b plans (50k total) and defined contribution plan (72k, doing mega backdoor roth) annually. I have no other traditionalg IRA accounts other than the one above. Many thanks!🙏🏻
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https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/ Your rollover IRA needs to be moved over by the end of the year, not before you convert the 2026 Traditional IRA contribution to Roth. I imagine the 2 people you talked to at Fidelity were just the initial people you get when you call, they have only basic understanding of things. If you talk to a retirement specialist there. they are more trained for such questions.
The first one who said the rollover never needs to be moved was an advisor I’ve worked with before who knows my company’s benefits plan well. AI got pissy about how wrong it thought he was. The second guy seemed almost more knowledgeable, and indeed was a guy who answered the phone when I called. 🫠
From the link- Therefore, it is critical that you DO SOMETHING with any IRA balance you have PRIOR to December 31 of the year Not my opinion. Also I did this a few years ago. Form 8606 only asks what your ending year balance is. Here's another link to review https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-at-fidelity/
TYSM Yes, I just edited my post. The DCP is a 3rd account through which I am doing a mega backdoor roth within Fidelity. So I have two Roth IRA accounts. Fidelity confirmed they can accept the traditional IRA and roll it into my 403b. For my mental clarity, I would roll it over before ever launching the backdoor roth process at Vanguard.
Thank you. I would roll it over first before launching anything else.
Make sure your numbers are right. $72k is the total amount that can be contributed, total, from all sources, to any 401k/403b. Typically $24.5k is just contribution and some amount is match. Only the remaining space makes sense for after-tax contribution and thus MBDR.
A 403b is a defined contribution plan. So is a 457b. Do you have another one? Do you mean you’re contributing up to the total maximum of $72k and doing a mega backdoor Roth? Make sure you can roll over the IRA into the 403b. Not all allow that. I would make sure it’s done first to avoid expensive surprises later, but this is done correctly along as that “reverse rollover” is completed by December 31. Otherwise you do owe pro rata tax on the conversion, which at your amount of traditional IRA would make this not good.
I’ll read up on that link, but in your opinion as long as I roll over the traditional IRA this year, there’s no reason I wouldn’t qualify to do my backdoor roth plan for the max each year (7500 this year).?
Your traditional IRAs only need to be empty on 12/31 in the calendar year Roth conversion happened. You can roll to 403b first or later, as long as it's done before 12/31. Emptying it later runs the risks of the 403b denying your rollover, not rolling over in time, or you forgetting to do it.
Look up pro rata rule. Amazingly, AI is more right than the Fidelity person.
This probably doesn't apply to you, but for rhe future or anyone else. If you are married and your spouse doesn't have an IRA, they can do the backdoor and not be affected by the prorata rule. Even though you are married filing jointly the rule applies per person.
Fidelity is technically right. You don’t have to empty the trad IRA; it’s just a bad tax move.