How to perform a Fidelity Backdoor Roth IRA (Step by Step Guide)
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- Опубліковано 4 чер 2024
- A Backdoor Roth IRA is a method where you make a nondeductible contribution to a Traditional IRA and then do a Roth conversion to a Roth IRA, allowing someone to contribute to a Roth IRA if they are over the income limits.
This video will show you how to perform a backdoor Roth IRA step-by-step and guide you through the process with Fidelity Investments.
I do this process every year with my own Roth IRA in Fidelity, and in the first part of this video, I explain the backdoor Roth IRA and why you may want to consider doing one and the steps I take at the beginning of every year to contribute to not only my backdoor Roth IRA, but also my HSA.
As I perform my contributions once per year and both of these accounts are at Fidelity, this process is incredibly easy and convenient.
This was my first video on this channel in 2022, and it was so popular throughout the year that I decided to remake this video with all of your FAQs baked in with some improved video editing to make things much more clear. I hope you enjoy this video and that it's helpful for you if you decide to do your backdoor Roth with Fidelity!
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Chapters:
00:00 Intro
00:24 My Retirement Strategy
05:14 Backdoor Roth Guide
10:11 Outro
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Disclaimer: I am not a financial advisor, accountant, or lawyer, and as such, I do not provide financial, tax, or legal advice. This video, and any ideas presented in it, are opinions and are provided for entertainment purposes only. Please do your own research and consult your own financial, tax, or legal professional for specific advice.
#fidelity #rothira #financialplanning
🌟 2024 UPDATE: The Roth Contribution limit is $7,000 ($8,000 for those 50 years and older)
It has also come to my attention that switching your core position to FDIC from SPAXX is not necessary when doing this backdoor Roth IRA strategy. However, some of you (like myself) were not able to do the final Roth conversion step and have found that switching the core position of the funds in the Traditional IRA from SPAXX to FDIC solved the issue. I don't know why this solution worked, but in any case, I presented it in this video to help any one else who encountered the same problem as me. In any case, happy retirement planning and let's make it a great 2024!
Does one have to wait between Cash Management/brokerage account to traditional and traditional to roth transfers? I talked to fidelity and they said you can do it immediately within seconds. Any implications of doing immediately?
@@sohilshrestha9506 I personally wait for funds to clear before doing a Roth conversion. I don't think there are any implications to doing it immediately, but it just gives me more peace of mind knowing that there's a record of my funds cleared in my Traditional IRA before it gets Roth converted. As for CMA/bank to Traditional IRA, I transfer it as soon as I'm ready.
This is the first time I will be doing it. I just want to avoid those pennies in interest. and make sure all the pitfalls are covered @@TheCreditFrog
Hey, thanks for the great video. If you do not have the money saved up at the start of the year, can you do this on a monthly basis as you get paid? Transfer the monthly breakdown of the new $7k limit ($583) into the traditional, and then immediately roll over every month, in order to put that money to work in the Roth IRA? Also can you still withdraw any contributions you make (not gains) to the roth IRA if you do it this way?
@@Ryanduncan27 Thanks! Yes, you can certainly do so. I would only say that Fidelity accrues interest at the end of the month so in order to keep the Trad IRA at $0 by Dec 31st, would recommend front loading contributions towards the end of the year so you can Roth convert any interest accrued before December.
As for contributions, I'm not entirely sure. I would ask a financial professional to make sure if this is ok.
Probably the best walkthrough I have watched! Thank you!
You’re welcome! Glad you found the video helpful!
Perfect! This is what I've been looking for when it comes to a step by step explanation. Thank you!
Of course, Peter! Glad you found it helpful!
Dude your video is right to the point, clear and easy to follow. Love it. Subscribed!
Hey, thanks! I’m glad you found it helpful, and I appreciate your support 👍!
Thank you for making this video clear and step by step
No problem. Glad you found it helpful!
I've been so worried about this process but this video made it so simple! Thanks for the step by step!!!
Of course! No problem, and I'm glad I could help you out!
This is exactly what I was looking for. The amount of detail you provided was perfect. I was thinking how to I change my core position and then you showed how! Fantastic content.
The only thing could add is information on the required forms to submit with your Tax return.
Thanks Donovan! I'm glad you found the content helpful, and I know that it can be somewhat confusing to change your core position so I'm happy that this was helpful as well!
Yes, this could be a helpful thing to explain. Maybe in a future video!
@user-tm1kb3fq4m It’s a pretty simple process, but if I ever make an updated video, I’ll be sure to include it👍!
Immediate new subscriber just from this one video, thank you so much for being so thorough and guiding us through step-by-step style by showing us, instead of just talking about it.
Of course! I’m glad that this video was helpful, and I appreciate your support!
Best video explanation on backdoor roth conversion!
Thank you! I'm glad you found it helpful!
This was the easiest way anyone has explained this process that I’ve seen. Thank you. I was nervous about this process but now it doesn’t seem so scary
You're welcome Jonathan! I'm glad that you found the video to be helpful!
I made this video in 2022 and a lot of people found it helpful, so I wanted to remake it even better 1 year later! Hope you enjoy and if you have any questions, leave a comment down below! 👇
Excellent video however, I am also a Fidelity user and I saw a flaw.
Do you have a fidelity cash management account which means when you deposit money into it it goes into a bank like interest-bearing account whereas I have the exact product except for mine is the brokerage account so when I deposit money it goes into the sweep account, which is SPAXX which earns a lot more interest
Other than that, this was hands-down, one of the best videos on the subject. I can’t wait for your new update come out.
@@missouri6014 Thanks! Yeah, using SPAXX is actually going to earn you more interest for sure, but really the CMA is meant only to be a temporary holding account for the funds until they get ultimately get transferred to the Trad IRA, then Roth IRA, and then gets invested immediately. So you're definitely right about that, but since the money is in there for such a short time, I thought it was ok. Appreciate the feedback and glad you found the video to be helpful!
@john-d1775 No prob! There is no maximum limit to a Roth conversion, but (as far as I know) you can only Roth convert up to the annual contribution limit without triggering a taxable event. If you Roth convert a larger amount, the remainder will be taxed as ordinary income.
Quick question how do you calculate your MAGI? I got a raise mid year last year and I’m not sure if that puts me over the limit for the Roth IRA
@@karlasanchez2422 There's a lot that goes into that. I would recommend you speak to a financial professional if you have specific questions.
Subscribed. this is the clearest video on the subject so far.
Thank you! I'm glad you found the video helpful!
Great video. Thanks for the clear explanation of step by step process.
You’re welcome Sony! Glad you found it helpful!
Wow, what an amazing video. Perfectly executed with clear, simple instructions and illustrations. Perfect editing too. Great job man!!!! Thank you 👍🏼
Thank you so much! I appreciate your kind words. Glad I could help you out with this video!
Same! This made the process so understandable! Thank you!!! Do you know if if in a back door IRA conversion if each conversion/contribution has to be in there for 5 years before tax free?
@@la54578 No problem! I'm not entirely sure about the 5-year rule. I'm pretty sure it applies to this as well because you're doing a Roth conversion of your contribution so it technically counts as a conversion. But if you wanted a true answer, I would speak to a financial professional.
This was a super helpful video. I've always been curious as to how to actually perform one of these. Since I am still eligible to contribute to a Roth IRA without needing to use the backdoor method, I'm set for now, but this will be super good to look back on in the future. Now I just gotta get my income up!
Glad you found the video helpful Spencer! Yes, it's a retirement strategy that is pretty simple to understand and can be very helpful to get some more money into that Roth once you're over the income limit! You'll be over this limit sooner than you think, and when that time comes, you'll know exactly how to handle this situation 👍. Also Green looks great on you 🤩!
@@TheCreditFrog I'm excited for the day! And I'm loving that green badge. Definitely looks nice!
Dammit! How have I missed this for so many years! Just did it. Thanks!
No problem! Hey, as long as you get started, that’s what’s most important!
so helpful! Thanks for breaking it down step by step
You’re welcome! Happy you found it helpful!
Great information Stan! I can definitely see this video being an evergreen video based on how clear and well explained the information is!
Thanks Eric! Yeah, I hope that this video will help anyone that is trying to perform a backdoor Roth with Fidelity. It was super confusing the first time I tried to do it so hopefully others can learn from this video!
Thank you for making this step-by-step video. It is super useful!
Of course! Glad you found it to be helpful!
@@TheCreditFrog Perhaps, you could do a video about "Mega backdoor Roth" which I hear people talking about it.
@@huy3967 Great suggestion! That technique is a little more complicated with a lot more moving parts so that is something that I need to do a lot more research on!
Thanks for making this simple. Articles make it seem so difficult and confusing with technical jargon. Subbed
You're welcome! Glad you found the video helpful. Appreciate the support!
This is an awesome video here Stan! And even though I'm not currently in the high-income bracket, it'll surely be super helpful for all those high-income earners that make more than $138K and still want to contribute to a Roth.
Thanks Matt! I know you will get there soon! Although since you’re getting married this year, the numbers may change in your favor. If anything, this video will be here when you need it!
What a great video, Stan! Thank you so much. Quick question: I have both a SEP and traditional IRA. From my understanding, the SEP limit is based on your self-employed income, however I keep reading that the limit for all IRA contributions is $6,500 for 2023. Can you explain that better or if there is something I may be missing? Additionally to avoid pro rata, I would still need to make sure that both the SEP and traditional IRA balances are zero by the end of the year that I completed the conversion to Roth correct?
Hi Selby! Of course, glad you enjoyed the video. The SEP limit ($61k in 2022) is separate from the Roth IRA limit. And yes, to avoid pro rata, both Traditional IRA and SEP IRA must be zero by 12/31!
I have 2 different old IRAs. Just to make sure, can I transfer them both in Roth IRAs in January 2024?
Awesome best I've watched paying attention to details and situational awareness 👍🏼👍🏼
Thanks! I really appreciate your support, and glad you found the video helpful!
Wonderfully explained and so much easier to do this on Fidelity than the Vanguard site. Thank you.
You're welcome! Glad to hear that it's much easier over on Fidelity!
Great video! I made the mistake of contributing directly to the traditional IRA and then I had to wait to move it to the Roth IRA and the cash accumulated $4 of interest which then showed up on a tax form and I had to report it as income which seemed stupid 🤦♂️.
Next year I'll definitely make sure to contribute to my CMA first and let it settle before transferring.
Yeah, it’s super annoying when it does that. They key is to do the Roth conversion the moment the funds hit your Traditional IRA. I do this the same day and still got $.60 of interest at the time, but the IRS rounds down so it shows up on my Form 8606 as negligible hah!
@@TheCreditFrog What are you planning to do with the $.60 of interest? Are you going to withdraw it or keep it in the traditional IRA account? Thanks!
@AustenOw Roth convert it. I’ll have to pay ordinary income tax on it but that would be a small amount.
@@TheCreditFrog Thank you! There is $.85 of interest in my traditional IRA account left over after my conversion. Would it be an issue if I just transferred that .85 to my CMA or other bank account? Or is it mandatory that the $.85 be converted also? Thanks again. I'm a subscriber!
@aau_626 Yeah, I wouldn’t withdraw any interest from your Traditional IRA if you could help it. Usually not a great idea. I’m not a financial professional, so I’m not super familiar with the specific consequences, but I would just Roth convert those funds to keep it simple. Thanks, I really appreciate the support!
first!
You got first Josh! 🥇
Even I understood this video. Thank you for keeping it simple for the novice.
You're welcome! I'm glad I could help you out!
Good stuff. Looking to do just this. You made this clear to me this is done at the end of the year. Sweet. Thanks for sharing
You're welcome! Just to be clear, although you can do this at the end of the year, I recommend doing the Roth conversion at the beginning of the year. But it's nice to have all the contribution money saved up at the end of year so when the new year rolls around, you're ready to max out that IRA contribution!
Thank You ! Perfect details in your video . perfectly explain its enough information about how to increase funds position in fidelity .
You’re welcome! Glad you found the video helpful!
Amazing video - thank you so much for explaining this so clearly.
You're welcome! Glad you found it helpful!
Frickin' AMAZING video. Thank you so much.
Glad you found it helpful, and you're welcome!
Great video! Easy to understand and follow along. I appreciate you!
Of course! Glad you found it helpful!
This was an excellent step by step guide Stanley! Roth IRAs are such a great addition to pretax retirement accounts.. I've been doing my backdoor roth IRA for the past few years with Vanguard.
Appreciate it Josh! Yeah, contributing to a Roth using the backdoor method is a pretty simple thing to do. Just gotta make sure that it won't trigger any tax complications! Vanguard is another great choice so that's awesome you've been contributing regularly to your Roth as well!
@@TheCreditFroghow do you make sure it doesn’t flag any tax contributions ?
@@mikelaary911 Not sure if this answers your question, but Fidelity won’t let you contribute more than allowed for the year.
This is great. Really thorough and well done.
Thanks Chris! Glad you found it helpful!
Wow! Great video! Clear and to the point. You earned a sub.
You're welcome! Glad I could help you out, and appreciate the support!
This was very helpful video. I was looking for something like this for a while. Thanks and Keep up the good work Stan!
Hey, glad you enjoyed it Tanjim! Hopefully this video has made this process easier for you!
@@TheCreditFrog Hope its not too much to ask but would you please make a video regarding tax implications on this topic (like- what to mention or if there is any additional form , section needs to fill out?). We know that everyone’s situation is different and should consult with Tax professionals but would be nice to know what you would do in your situation. Thanks in advance.
@@TH-TravelingTales Sure, so I think that this topic can get complex very quickly, and I'm not the best person to ask about this - but I will say if you look up IRS Form 8606 and read that form and the instructions thoroughly, a lot of your questions and concerns will be addressed in that document. That's the form you need to fill out for a backdoor Roth IRA 👍!
Thank you for this video! You saved me a call to Fidelity :)
You're welcome Andrea! Congrats on getting that backdoor Roth in early this year!
Best training after watching 20 others. Thanks!
You're welcome! Glad you found it helpful!
Simply, you're the best
I appreciate that, thank you! Glad you found the video helpful!
Clean, clear and concise! So good. Thank you!❤
You’re welcome!
Wonderful explanation!
Also, I love the model ✈️
Thank you! Haha, I appreciate it! ✈️
Thanks! Changing the core position was the step I was missing in getting this to work and only found that info here :)
That's great Christian! Yeah, I had the same issue as well, and couldn't figure out how to get it to work otherwise. Some people said that they could Roth convert with SPAXX, but I'm happy to hear that I'm not alone with specific problem, hah!
bro is sitting there talking about making too much money in income each year to directly contribute to a roth ira while wearing a figs jacket on what a GOAT! thanks for explaining it so clearly man keep up the good work
You're welcome! Glad you found the video helpful!
Thank you so much for this video! It's super helpful.
You’re welcome!
Learned so much! Thank you!
Of course Justine! You’re welcome!
Thanks for this video. It served as a good reminder for me to do the same!
Of course Mason! Gotta remember to do that Roth IRA contribution! 👍
Such a good and useful video. Hats off
You're welcome Nate! Glad you found it helpful!
That was super easy to understand and I’ll be setting this up bc my 401k and brokerage acct is already with fidelity.
Awesome! That will make tracking all your retirement accounts easy
Thank you. This video was amazing.
You're welcome! Glad you found it helpful!
This is so helpful, thank you so much!
You’re welcome! Glad it helped you out 👍!
Fantastic content! Excellent job!
Thank you so much!
Very clear instruction
👍
You are the best! Thank you
You're welcome!
Great guide I used to have to do backdoor Roth IRAs when I used to invest in equities. This brought back some memories.
Thanks man! Yeah, it's a pretty simple process and hopefully this video made it more clear to set up. I know it varies between banks, but the main concepts are there. Glad you enjoyed it!
Dude, awesome video and answered my questions!
You’re welcome! Glad you found it helpful!
From everything I’ve read, it made it seem like you need to “convert” a traditional account to a Roth so had me stumped on how you could do this year after year unless opening a new account each time. This made it clear you open two accounts and the conversation is just the transfer from tradition to Roth. Hence going through the back door! Duh! I also read this method could be going away after 2023 😩 thanks, again!
@@Floathead Yeah it’s pretty simple! I hope that they don’t get rid of this strategy, but we will have to see!
Lovely! Well done
Thank you!
this was really good great explanation!
Of course! Glad you found it helpful!
Hello Stan, thanks for sharing this video. As other commenters of said, this was explained claring and using a common application. It is clear and will help me to set up mine. Subscribed to support "The credit frog"
I appreciate that! Thank you so much for your support, and glad I could help you set up your own backdoor Roth IRA!
Hi Stan, does the Roth IRA core position also have to be set to FDIC-INSURED DEPOSIT SWEEP? or just the traditional IRA? Huge thank you for this video, it helped me a lot!
Hi Tina! I'm glad you found the video helpful! No, the Roth IRA core position can be whatever you want. Ideally, you would invest that money once it is transferred into the account so the core position shouldn't matter at all.
Thanks Stan, this is really helpful. I used your step by step info and just finished contribution for 2022. One thing I wanted to check. What shall be the core position after money is transferred to Roth? Should it be FDIC or SPAX?
Glad this video helped! It shouldn’t matter in the Roth because the money should be invested elsewhere after it gets in the Roth. FDIC and SPAXX are just places to hold your cash before it gets invested elsewhere!
Bro this is awesome
Thank you!
Great video. Thanks!
You're welcome!
Solid instructions
👍
Subscribed. Great video step by step guide.
Thanks! Glad you found the video helpful!
Hello!
Do I need to change my core positions in both the traditional and Roth IRA accounts before the conversion? Or is changing it in the traditional only alright?
Thank you
Hey! You only need to change the core position in the Traditional. It’s just to make the Roth conversion seamless, although someone mentioned that they were able to convert from SPAXX with no problem. I was only able to do with FDIC. Ideally, you’d invest the money in your Roth so you should have little or no core position in your Roth anyways.
Excellent.
Thanks!
What do you do with the interest that accrues on the cash in the FDIC insured deposit sweep during the time it takes for the transfer from cash management into traditional IRA to clear? Great video!
Thanks! You can Roth convert those funds as well, but you have to pay ordinary income tax on it. Usually the amount is pretty small though so it's usually ok!
Wow - thank you!
🔥🎉✊🏽
You're welcome! 👍💯
Hey Stan, great video! Just one question. if you already have an existing Roth IRA and you pass the income limit, all you need to do is a create a traditional IRA to have this backdoor strategy or is it more complex to do so a that point?
Thanks! Yes, if you directly contribute to a Roth and then pass the income limit, you have to unwind what you did, which includes if you got any capital gains from investments you made. At this point, a CPA or tax professional would be best!
@TheCreditFrog, thank you for the video. It is really helpful. I have a question: I do have other traditional IRA account with balance in other platform ( not fidelity). but for Fidelity, if I create a new traditional IRA account with $0 balance, can I do the Roth IRA back door conversion starting from 2024 and year by year later on? Thanks so much!
You're welcome! So if you have Trad IRAs with other platforms, that still counts. All Trad IRAs from all other platforms must be $0 by Dec 31st for this to work out. Otherwise, you will pay taxes due to the pro rata rule. If you're interested in doing a backdoor Roth, you could Roth convert those other Trad IRA funds, but this would trigger taxable events. It may be worthwhile to consult with a tax professional to see what your best options are, for example, a Roth conversion ladder.
Thank you for the very informative video...If I have a Rollover IRA balance, can I still use the backdoor method?
Of course! Unfortunately, if you have a rollover, you shouldn’t do this. I would first either convert that Rollover to a 401k or Roth convert that Rollover first, but make sure you speak to a CPA before doing a Roth conversion as the money converted will be taxed as ordinary income.
Thank you!
You're welcome!
Hello, great video! I do have a question though. Could I skip the deposit into the cash management account and deposit the 6.5k directly into the traditional ira before the conversion?
Thanks! Yes, you can just deposit directly into the Traditional IRA!
Thank you so much.
You’re welcome!
Great video! Is there a limit to the number of times one can convert from traditional to roth ira in a year? Is there any advantage to doing a lump sum end of the year conversion?
Thanks! No, there is no limit on how many times you can do this, but doing this more than once can be cumbersome. I think doing a lump sum conversion at the end of the year would be a great way to do it, but just make sure you have $0 by Dec 31st in that Trad account!
Thank you so much for the detailed explanation! If for whatever reason, the money in the IRA goes up or down slightly due to markets/interest right before we do the conversion, does that affect the amount of paperwork we have to do? (i.e. is it still just filling out the one 8606 form?)
You’re welcome! No, it shouldn’t affect it that much. If the money goes up due to interest or capital gains, you’ll have to pay ordinary income tax on that difference, but that will still be reported on Form 8606.
Thank you for the great video. If I already had an older IRA account setup with fund saved to the account in previous years, is it better to open a new IRA and Roth accounts prior performing the same task?
You're welcome! From my perspective, it doesn't really matter, but it certainly helps if your Roth IRA and Trad IRA are both with the same custodian. Also, it's important to make sure that your older IRA (guessing it's Trad) has $0 in it by Dec 31st if you want to do a backdoor Roth. If not, definitely consult with a financial professional to figure out the best strategy to get there while minimizing your tax burden before attempting the backdoor Roth.
Thank you so much, excellent video! One question, I called fidelity this week and they told me they don't offer mega back door IRA contributions. Is this different? Do you use another company to hold the plan to allow for this? Thanks!
Thanks! Regarding mega Backdoor Roths, this is something that will be done using your 401k provider more than it would with your Roth IRA provider. You’ll need to see if your 401k provider offers in-service distributions and some other things. These can get very technical so I recommend you do this along with a financial professional because there are a lot of moving parts, and you don’t want to miss something!
@TheCreditFrog Thank you for your reply! For case management account (originally individual account), does it matter if I do have balance in the individual account for investment? I can transfer money to individual account, then just transfer the amount that I'll use for ROTH IRA conversion, correct? also how do we know if it is clear before transfer to IRA and then conversion? Thanks!
If you have a cash management account, that would be like a regular checking account so this would not count towards any investments. So you could transfer money from your bank into a cash management account (you could also transfer money directly from your bank into a Trad IRA) and then you could do a Roth conversion. The time it takes for the money to clear is variable, but usually ranges from 2-5 business days.
Hi great video! Thank you. I made traditional Ira account to do the same thing. I was wondering if I could make a transfer directly from my external checking to traditional Ira without CMA account with fidelity? I see the benefit for you having two transfers from CMA but I have Hsa from elsewhere.
Hey! No problem. Yeah, you could use any external checking account to transfer directly to the Trad IRA 👍!
Thank you.
You’re welcome!
Thanks for the video! What if the money shows up in the traditional IRA on the left hand side but it is not present under positions? DO I need to wait longer until it appears in the positions before transferring to Roth IRA?
I don’t think it matters, but I personally wait for the money to clear (is present under positions) before doing the Roth conversion. That way, there’s been some record the money was in the Roth first, but I could just be overanalyzing it.
Thanks for this video! It's really helpful. What if I have a traditional IRA funded 2 years ago? Can I still do a backdoor IRA for this year or do I have to zero out/transfer whatever I have in that traditional IRA first? Thanks!
Of course Samantha! So if you have a Traditional IRA, you can still do a backdoor Roth IRA, but it would be better to zero out the Traditional IRA first to avoid tax complications with the pro rata rule, and you'd usually through a Roth conversion. This will likely trigger ordinary income tax on the conversion though so consult a tax professional first! The most important thing is to make sure the Traditional IRA balance shows $0 by Dec 31st, so luckily you have another 6 months to figure this out!
wow awesome content. Thanks a lot!!
No prob! 👍
Exactly what I needed. Been hunting a video that shows step by step with clarity and this is perfect. Thanks!
Stan- Any idea what we should keep in mind if someday we may have to exit United States before we hit the retirement age? This usually is a fear that many expatriates working in US on employer visas have.
You're welcome! I'm not sure what to do in that situation. I think for most custodians, a US-based address is required, but I'm not too familiar with the rules concerning expatriates.
Thank you for a wonderful video, very well explained. Could you help with my question . I did a monthly contribution to my ROTH IRA but at the end of the year I found myself not qualified since my income had exceeded the ROTH limit.
I plan to recharacterize that to traditional ROTH but what would I do with my growth ?
Thanks! I recommend you speak to a CPA or tax professional to see what your options are.
Very helpful! Question on the core position in the traditional IRA.. Mine has been set to SPAXX and I did the back door conversion last year. Are there any implications for having SPAXX as my core? Also, I realized after my contribution/conversion this year, I received a small dividend in my T-IRA. What is the best method to ensure 0 balance by the end of the year? Thx!
Thanks! No, having the core in SPAXX is fine as long as you could do the Roth conversion. The best way to have a $0 balance is to Roth convert the remaining balance. Fidelity starts accruing interest on core positions right away so it’s best to always try to get that small amount of money out of the account asap by Roth converting it! You’ll have to pay ordinary income tax on that small amount but as long as there is $0 balance at Dec 31st, it should be ok
Just subsribed! Thank you for this concise video. I do have a question -- I'm curious as to why you do it once a year (and why January?) vs doing it monthly per say? Are there any advantages/disadvantages to this?
You’re welcome! Thanks for your support! I do this once a year for simplicity. I only make 1 contribution and 1 Roth conversion (2 because of interest), as compared to doing this same sequence 12 times. This process just works better for me, but you could certainly contribute monthly if you wanted!
Well that was easy. Thanks!
You’re welcome!
Hello Stan and thank you for your video. I transfer funds from an outside account to the traditional ira directly. This takes at least 7 days to settle before I can complete the roth conversion but by then some interest has already accrued and is usually deposited in the traditional ira weeks after the roth conversion. So my traditional ira ends up with a balance of 5-6 dollars of accrued interest for those 7 days before conversion. How would you recommend handling this balance?, understanding that you need the traditional ira balance to be 0 by the dec 31st to avoid the prorata rule.
Hi Victor! Glad you enjoyed the video! Yes, if some interest accrues in the account, you can Roth convert the extra amount over ASAP so you can ensure your Trad IRA has $0 by Dec 31st. You’ll have to pay ordinary income tax on it, but since it’s a small amount, it shouldn’t be too much of an issue. You’ll just document this difference on Form 8606. Hope that helps!
Hi and thanks…you mentioned that you can’t have anything in other IRA’s. Am I excluded from being able to do this if I have a rollover IRA?
Hi Tara! Yes, if you have a rollover, you probably shouldn’t do this since it will generate tax. It’s possible, but better to have a CPA guide you through this to see what your options are.
Greta video thank you! I'm confused, is it absolutely necessary to have the funds in the cash management account before January 1 or can you do it qll in the same year?
You can do it all in the same year! You also technically don't need a CMA, and can use your existing bank if you want.
I learned a TON!! I will click 100 thumbs up if they allow. 😁Thank you so much!
Of course! Glad you enjoyed the video and learned a lot!
thanks for the video!, just as an FYI, you don't need to convert to your Core position on Traditional IRA from SPAXX to FDIC-Insured Deposit Sweep Program, it is possible Traditional IRA with core in SPAXX direct to ROTH IRA
You're welcome Gabriel! Glad you found the video helpful! Thanks for the tip. Yeah, it seems like converting to FDIC isn't necessary, but for some reason SPAXX wasn't working for me. I'm glad it worked for you, and a lot of others have mentioned the same!
Thanks for back door tip, quick question can you speak on the (Post 86) option in 401k
Sure thing! Unfortunately, I’m not as familiar with the Post 86 option for 401k so I’m not entirely sure.
Thanks for this information. Can you transfer stocks directly from cma to ira accounts ?
No problem! I think that should be fine, but haven’t tried it myself!
Did you implement the sound processing in this video? The audio sounds so good! I can see this video being a very good evergreen video. I’ll definitely come back to this once my income exceeds that threshold.
Yup! I sure did. Thanks CJ! Now I just need to train my voice to sound as deep as yours haha! Happy you enjoyed the video and you’ll definitely be back here one day 👍!
Thanks for the video. Very helpful! For yearly contributions, do you have to open a new roth ira account in 2024 that is different than 2023? Will this require you to manage x amount of accounts?
Of course! Glad you found it helpful. For future contributions you can use the same Trad IRA/Roth IRA accounts that you already have!
Stan, thank you for the information. Would you be so kind to elaborate on what you said at 7:55 / "you are unable to do Roth Conversion" if your core position is not in "FDIC Insured Deposit Sweep" ... as in technically or legally ? I did some research and realized I could have done the transfer (from Traditional to Roth) even from the Money Market account. At least from a technical standpoint which is not possible anymore as I'm waiting for the core position to change/settle so I can do my conversion. Why the extra step and risking the accumulation of interest to change the core position ? What am I missing ?
Sure, no problem. Yeah, so this is from a technical perspective. When I do my Roth conversions, I had trouble doing so while my core position was in SPAXX, but once I switched this to FDIC, I was able to Roth convert with no issues. Others in the comments have told me that they have converted while in SPAXX with no problems. So I guess it depends on the person. Changing the core position would be the first thing to troubleshoot if Fidelity is not letting you do the Roth conversion. Hope that helps!
Is the cash management account necessary for this process? or could funds go directly from my checking into the traditional? could I follow the same steps that way? Thanks again, this is by far the most simplified and digestible way to conceptualize backdooring a roth
No, it's definitely not necessary! I just use it so I can have my money in the Fidelity system so I don't have to wait as long for an ACH to clear to transfer the funds into the Traditional IRA. You can do this with any checking account and then follow the steps in this video! Glad that this video was helpful for you!