What is your typical strategy for contributing? Dump the whole 6k in Jan or average in over the course of the year?

Debating.

I have to do a backdoor Roth, so I dump mine in all at once. Not necessarily in Jan, but definitely before April 15, and usually before or around the time I file my taxes (just because finances and investments are at the front of my mind).

With Fidelity, whether it's a backdoor or not, when I make my initial contribution, it goes into a deposit account, and then I have to move the funds to whatever investment accounts I want.

I realized a few months ago that for two of my last deposits, I forgot to do the second transfer. So I had money sitting in an account for 6 months - 1 year earning absolutely nothing.

Seems like doing monthly deposits would be a great way to forget to do the transfer on a regular basis. If there is a way around the first step, I'm not aware of it. Maybe other institutions are different.

Fidelity
Backdoor
Put 6k in on Monday, waiting for it to settle, then will transfer/convert

I have the same dilemma right now. Just sold enough company stock to cover Roth without the need to backdoor it.

Trying to decide whether the dump it all in now or spread it over the year. I filled the Roth in Jan last year and obviously missed an opportunity when prices tanked.

Stocks being at record highs this early in the year has me wondering there will be a pull back at some point.

I do lump sum, put it in mutual funds, and forget about it. I for not trying and time the market. I don't actively manage any of my retirement account on my own, so that is why I do it and forget about it. I like the various ARK funds that several on this forums have recommended.

I use my play around money to be active with, so that gets managed almost daily.

6k on Jan 1 to VTSAX in a Roth IRA.

Time in the market beats timing the market!

Should you contribute your maximum as a lump sump at the beginning of each year, it's still equivalent to averaging in, but being done on an annual rather than monthly periodicity.

Either way. Neither is right or wrong.

Monthly gives different entry points.
Annually gives one entry point.

Both can work for you or against you.

silly question - I've got a long-term IRA (that was a 401k rollover) but would like to start doing a backdoor Roth.

I currently have a Roth as well.

Can I do a simple backdoor for just the 5,500 and convert to the existing roth? When you backdoor and convert, does it make a separate roth account every year, so you've got like 30 roth accounts when you retire?

My IRA is with an advisor and my Roth is with vanguard. I'd ideally just make a 5.5k ira with vanguard and then convert immediately.

Couple of different questions there but yes you can convert to your existing Roth and no it doesn't create a new Roth each time.

Also, the contribution limit is 6k and not 5.5 as you mentioned so keep that in mind.

Good Poster said:

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Couple of different questions there but yes you can convert to your existing Roth and no it doesn't create a new Roth each time.

Also, the contribution limit is not 6k and not 5.5 as you mentioned so keep that in mind.

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Thanks. I don't want to convert my current IRA though and pay the taxes. I'd like to just keep "opening" a new IRA with vanguard and converting that to a Roth.

Rules state you can't have more than 1 traditional IRA, will that even be traceable with a quick conversion?

There is actually no limit to the number of IRA's you can have, only the amount that you can contribute into IRA's per year. So whether you have three IRA's or only one, the 6k contribution limit is how much you can put in on a yearly basis. (I.e. if you had three IRA's you could do 2k in each, or 6k in one and nothing in the others)

I would also keep in mind that when you do Roth conversions, you don't have to convert the entire account. You can do partial conversions each year of the same account.

Some people do partial conversions each year to strategically move money into their Roth IRA's for tax purposes because if you did the whole thing at once, it could potentially push you into a very high tax bracket for that year and the IRS would take a ton.

Good Poster said:

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I would also keep in mind that when you do Roth conversions, you don't have to convert the entire account. You can do partial conversions each year of the same account.

Some people do partial conversions each year to strategically move money into their Roth IRA's for tax purposes because if you did the whole thing at once, it could potentially push you into a very high tax bracket for that year and the IRS would take a ton.

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How do the taxes on this work for the gain on the IRA? Or are the stocks individually converted then calculated to see their basis+gain that I have to repay?

I like the idea of the partial conversion.

The amount that you choose to convert into your Roth IRA will be taxed as ordinary income. The total amount that is taxable is affected be whether the contributions to the IRA were deductible or not. Any contributions that were deductible and any gains associated on them are taxed at their full current value.

Choppin, a good CPA can do wonders for you if you anticipate a higher tax bracket in retirement especially with conversions into an existing Roth IRA.

I can help at the conceptual level because I work in the industry but I would make sure your CPA signs off on exact dollar figures, etc.

Good Poster said:

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The amount that you choose to convert into your Roth IRA will be taxed as ordinary income. The total amount that is taxable is affected be whether the contributions to the IRA were deductible or not. Any contributions that were deductible and any gains associated on them are taxed at their full current value.

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duh - I deducted ordinary income - I pay ordinary income.

So looks like I'll start doing that - I may even choose to start converting the IRA in chunks as well.

Nothing like strategically loading your Roth IRA and taking tax-free distributions in retirement

Good Poster said:

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Nothing like strategically loading your Roth IRA and taking tax-free distributions in retirement

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How is that income disclosed to me? Show up on a 1099-DIV?

The conversion, that is

On conversion don't forget the calculation there. It's the amount converted X tax rate.

Goal is to ultimately pay the lowest taxes at the time taxes are due. We haven't contributed since last January but if we had converted the full balance last March vs. today we would have paid something like $10,000 more in taxes today simply based on balance growth during that time period. i.e. could have converted the whole thing at a bargain in a tanked market.

The other thing is if you can do a Roth 401k through work which or make after-tax contributions and in-plan conversion of those to Roth, your tax free bucket can get big enough through that such that in retirement you're keeping your tax rate on taxable distributions from traditional IRA below tax rate you would be paying on conversion now.

GE said:

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On conversion don't forget the calculation there. It's the amount converted X tax rate.

Goal is to ultimately pay the lowest taxes at the time taxes are due. We haven't contributed since last January but if we had converted the full balance last March vs. today we would have paid something like $10,000 more in taxes today simply based on balance growth during that time period. i.e. could have converted the whole thing at a bargain in a tanked market.

The other thing is if you can do a Roth 401k through work which or make after-tax contributions and in-plan conversion of those to Roth, your tax free bucket can get big enough through that such that in retirement you're keeping your tax rate on taxable distributions from traditional IRA below tax rate you would be paying on conversion now.

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I've also considered that.

If I have enough tax free stuff, I can take that first and then just keep taking my taxable distributions at a super low rate.

Pension from the wife will be taxable but that's free money in my eyes.