12 Things You Must Know About A Backdoor Roth IRA (Including If It's Worth The Hassle)
117,972
Published 2023-12-21
Timestamps
0:00 What is a Backdoor Roth IRA
0:57 401k vs IRA
2:35 Deductible vs Non-Deductible IRA Contributions
3:49 Why Make Non-Deductible Contributions?
5:06 Backdoor Roth IRA Strategy
5:55 History of the Backdoor Roth IRA
8:04 Annual IRA Contribution Limits
10:08 Pro-Rata Rule
12:10 Mega Backdoor Roth
13:24 Backdoor Roth IRA vs Roth Conversion
14:45 Convert non-deductible and deductible contributions to a Roth IRA
15:37 5-year rule on Roth Conversions
16:20 Is it worth the hassle?
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Video Resources
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IRA Deduction Limits: www.irs.gov/retirement-plans/ira-deduction-limits
Backdoor Roth IRA Calculator: docs.google.com/spreadsheets/d/13cgjQduRNwhudvISyW…
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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All Comments (21)
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Rob, you're a FANTASTIC teacher. Thank you!
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THANK YOU for touching on the pro-rata rule! After reading many articles about the backdoor Roth being portrayed as this amazing, secret tax advantaged approach, I did my own research to see how I could implement it. I learned about the pro-rata rule and, like you, found it isn't worth it for me due to the funds I currently have in several other IRA's. You are the only person I have found that highlights the real gotcha around this backdoor Roth. Appreciate the honest insight!
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I had a traditional IRA with dollars in it but my employer allowed me to roll it over it into my 401k reducing my traditional Ira accounts down to $0. Now I can do a backdoor Roth each year.
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I love all the detail in the video, it answered every question that I had which is unusual for most videos or articles on these subjects.
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Your videos are always well constucted and well informative. Thank you!
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Merry Christmas Rob! This was one of the best explanations I've seen on the Backdoor Roth! Thank you for all your videos!
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I really appreciate that your videos explain all of the ancillary topics that surround the main topic of your video and didn't just refer us to another video explaining the other topic.
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Thanks Rob, it is the most eloquent explanation I have heard about Roth conversion. Fantastic! Keep doing more such videos.
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To avoid the Pro Rata issue when having a pre-tax Traditional IRA, you can convert the IRA funds to your employer 401k funds, if the administrator from that fund allows it. Fidelity allowed me to do this.
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Thanks so much for the video, Rob. Super useful explanations. Wishing you and your wife a Merry Christmas and Happy New Year.
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Thanks Rob! you never disappoint. THANK YOU for finding this i-ORP calculator. It helped me start to think about my exact tax situation with new insight. Everyone else in the planning community wanted a few grand to answer these questions at the preliminary draft level I was seeking.
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Just found this and thank you for the explanations. We have been above the Roth IRA income limits for a long time, so I have basically put IRA's out of my mind. Every year we max out our company 401K's and have quarterly buys of $10K-$20K in stock at our brokerage (and I didn't even have an IRA yet). Definitely opening one for myself and my wife and contributing the max to each and converting to a Roth IRA - and will make sure to do so at the beginning of each year. Great way to save a bit on taxes that I wasn't doing, as no one really explained it very well until your video. With ESPPs, private stock offerings, GET/529 college programs, real estate ownership, etc. it can really be hard knowing where to put your money - coming from an immigrant family. Familiarity with US financial systems is something families who have been here for a couple generations take for granted.
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Thanks for this, I am in the middle of doing '23 and '24 backdoor Roth contributions. I did have a Trad IRA with a sizable balance, but am in the process of rolling that into my current employer's 401k to have a $0 balance in all other Trad IRAs before doing the conversion. This should avoid the Pro-Rata rule. Thought maybe this would help folks that might think it's impossible if they already have Trad IRA balances. If you have an active 401k that allows rollovers into it, you can clear the path for tax-free backdoor Roth conversions this way. Great vid as always, Rob!
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Thank you--this is the first time I've heard that the annual contributions(s) limit includes what you contribute to both your Roth IRA and traditional IRA. Thanks so much for this clarification.
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I ran simulations for Roth conversions on New Retirement and found, surprisingly, that the tax savings were minimal and my projected end of life end worth actually went down. With investments in the low 7 figures, I expected to see greater savings. Very worthwhile exercise.
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Very Good explanation! I had not understood this strategy before hearing this video!
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Excellent video Rob, thanks
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The best way my college mentor helped me understand the pro rata rule was: if you mix rum (non-deferred ira contribution) into your pot of hot apple cider (tax-deferred contribution), you can't just ladle out 100% rum to drink. If stirred properly, your solo cup will have the same ratio of rum to cider as is in the pot.
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Very clear and helpful. Thank you!
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Love the dive deep!
