How should I backdoor my Roth IRA?
I am single and have no dependents, am in my late 20s, and I made an income in 2019 that lies somewhere inside the phase-out section of direct contributions to a Roth IRA. I do not think I have any adjustments to make for AGI and MAGI. I have about 00 in a traditional IRA.
My plan is to convert that 00 to the Roth IRA to avoid the pro-rata rule. It sounds like I have to apply that to 2020 taxes.
At that point, does it make sense, for 2019, to contribute a non-deducted 00 to my traditional IRA and convert the money to the Roth? It seems like an extra pain to directly contribute some funds and backdoor the rest.
There seems to be a gray area with the step transaction doctrine. I understand there has been some guidance in the past couple years that seems to explicitly give the OK for this procedure, but should I wait several days anyway after contributing to the traditional IRA before I convert to the Roth? I was hoping to purchase an index fund on Friday with the money.
And if I instead move the 00 to my 401k and only convert the 00, does my 5 year clock for the Roth IRA start in 2019?
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The 00 is pre-tax money either from a rollover or a deductible contribution before 2019? If your plan is to convert it, you could actually make your non-deductible Traditional IRA contribution for 2019, then convert all 00 at once (you should owe regular income tax on the 00 only). I agree there is no point to directly contribute some and backdoor the rest.
There is also no point in waiting between the contribution and the conversion. Previously there was some ambiguity, but after Congress "blessed" the backdoor Roth during the recent tax law changes, it is absolutely OK.
There are two 5-year rules for Roth IRAs, but the clock for both would start in 2020; the year of the conversion is relevant, not the year of the original contribution.
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