Can someone help me make sure I am understanding the backdoor Roth process correctly. Want this to result in minimum or no tax liability if possible. This will all be done through Fidelity if that is helpful or helps tailor the advice.
Background:
- MFJ
- Above combined income limit to receive deduction for traditional (>121k) and above income limit to be eligible for Roth (>199k)
- Wife and I both already have Roth IRA's established at Fidelity from a time before we were above the income limits
- 2018 was the first year we were above the limits and we contributed $0 to any IRAs this year as a result
Steps we were planning on taking (where feedback is needed potentially)
1) Open a Traditional IRA for myself and a Traditional IRA for my wife
2) Fund each Traditional IRA with $5,500 (potentially doing $11,500 each as I can do '18 and '19 <2019 limit: $6000> contributions right now)
3) Keep in cash to prevent any gains from being made
4) Convert/rollover into existing Roth IRA accounts
5) Don't claim any deductions on taxes related to this
The above seems simple and what I have gathered based on my research/reading B&I board.
My one caveat (also where feedback may be needed) is that I have a rollover 401k at Fidelity that I believe is technically in it's own Traditional IRA. It's small dollars, ~$7k, of which ~$1,700 are investment gains. My questions for this are:
1) Does this have to be converted in the process too and therefore taxes paid on the investment gains?
2) If not, are there any tax consequences to leaving it in it's own traditional IRA account?
My wife and I also both have traditional 401k's through our current employers, although I do not think this is relevant or has any effect on what we are trying to do. Any help would be much appreciated!
Background:
- MFJ
- Above combined income limit to receive deduction for traditional (>121k) and above income limit to be eligible for Roth (>199k)
- Wife and I both already have Roth IRA's established at Fidelity from a time before we were above the income limits
- 2018 was the first year we were above the limits and we contributed $0 to any IRAs this year as a result
Steps we were planning on taking (where feedback is needed potentially)
1) Open a Traditional IRA for myself and a Traditional IRA for my wife
2) Fund each Traditional IRA with $5,500 (potentially doing $11,500 each as I can do '18 and '19 <2019 limit: $6000> contributions right now)
3) Keep in cash to prevent any gains from being made
4) Convert/rollover into existing Roth IRA accounts
5) Don't claim any deductions on taxes related to this
The above seems simple and what I have gathered based on my research/reading B&I board.
My one caveat (also where feedback may be needed) is that I have a rollover 401k at Fidelity that I believe is technically in it's own Traditional IRA. It's small dollars, ~$7k, of which ~$1,700 are investment gains. My questions for this are:
1) Does this have to be converted in the process too and therefore taxes paid on the investment gains?
2) If not, are there any tax consequences to leaving it in it's own traditional IRA account?
My wife and I also both have traditional 401k's through our current employers, although I do not think this is relevant or has any effect on what we are trying to do. Any help would be much appreciated!