Want to do Backdoor IRA but I have funds in my Trad IRA

Submitted by iclimbrocks24 t3_z7cuse in personalfinance

My current income is too high to contribute to a Roth IRA so I'm looking to complete a backdoor IRA. I understand it's best to zero out your Trad IRA before the end of the year or else I'll be subject to the pro-rata rule if I do a conversion. I currently have $2,500 in my Trad IRA. From posts on this sub, it seems like I have a few options to get around this. Which is better or easier to do considering we have just one month left in the year:

  1. Transfer my Trad IRA funds to my employer sponsored 401k plan?

  2. Cash out the $2,500 in my Trad IRA to zero out the account and deal with taxes after? I would be okay with paying these taxes as it should be less than $1k.

Thanks in advance for the help.

3

Comments

You must log in or register to comment.

Werewolfdad t1_iy5vjnk wrote

Easiest is just convert the $2500 to Roth.

Depends on whether you want to fight your 401k about a reverse rollover (which can be a pain)

7

iclimbrocks24 OP t1_iy5wc0f wrote

Does a conversion limit the amount I could contribute to a backdoor IRA? Or does the $2500 get converted and then I can contribute the difference for $3500 for up to 6k in total.

1

Werewolfdad t1_iy5x2si wrote

Were the traditional funds contributed this year or in prior years (or are they a rollover from a 401k?)

If the latter, you just pay the taxes on the $2500

So the answers to your questions are likely no and no

3

iclimbrocks24 OP t1_iy5z7j1 wrote

Thanks for your help werewolf. The amounts were contributed over 5 years ago when I was still under the limit. So after converting the initial $2500, I should not be subject to add’l taxes if I want to contribute more to my Roth via the backdoor method for the 2022 tax year?

1

debbiewith2 t1_iy6aoqj wrote

Converting causes the tax bill, but then you should be able to convert the 2022 contributions essentially tax-free.

3