Year 2 - Contributing to a backdoor Roth IRA

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FIorbust
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Joined: Tue May 07, 2019 8:18 am

Year 2 - Contributing to a backdoor Roth IRA

Post by FIorbust »

Hi all,
First post here. This past December I opened up backdoor Roth IRAs for me and my wife with max lump sum payments. In 2023, I will need to contribute monthly to reach max contribution again, however I'm confused with how best to move forward. I've seen two approaches:
1.) contribute monthly to your traditional IRA and then convert the payment to Roth each month
2.) put the monthly contribution in a regular taxable brokerage account and move it all into a Roth IRA at the same time at end of the year

Are there pros or cons to either approach? Thanks for helping a newbie.
tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: Year 2 - Contributing to a backdoor Roth IRA

Post by tashnewbie »

Welcome to the forum.
FIorbust wrote: Tue Feb 07, 2023 7:52 am Hi all,
First post here. This past December I opened up backdoor Roth IRAs for me and my wife with max lump sum payments. In 2023, I will need to contribute monthly to reach max contribution again, however I'm confused with how best to move forward. I've seen two approaches:
1.) contribute monthly to your traditional IRA and then convert the payment to Roth each month
2.) put the monthly contribution in a regular taxable brokerage account and move it all into a Roth IRA at the same time at end of the year

Are there pros or cons to either approach? Thanks for helping a newbie.
I'm sure you know there's nothing known as a "backdoor Roth IRA." The backdoor is a method for people whose MAGI is above a certain limit to contribute money to a Roth IRA.

This recent thread from another poster who asked the same question should be helpful: viewtopic.php?t=396087

I recommend reading it all the way through to read the answers to the OP's questions and see how some misunderstandings were corrected.
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LadyGeek
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Re: Year 2 - Contributing to a backdoor Roth IRA

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (IRA).
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Duckie
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Re: Year 2 - Contributing to a backdoor Roth IRA

Post by Duckie »

FIorbust wrote: Tue Feb 07, 2023 7:52 am This past December I opened up backdoor Roth IRAs for me and my wife with max lump sum payments. In 2023, I will need to contribute monthly to reach max contribution again, however I'm confused with how best to move forward. I've seen two approaches:
1.) contribute monthly to your traditional IRA and then convert the payment to Roth each month
2.) put the monthly contribution in a regular taxable brokerage account and move it all into a Roth IRA at the same time at end of the year

Are there pros or cons to either approach?
The sooner you convert after you contribute the lower the taxable gains/losses will be. You can get around that by using a settlement fund/money market fund in the TIRA. That avoids losses and minimizes gains when converting to the Roth IRA. Even so, if the conversion process is simple I would vote for #1.
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