For the first time ever I will make over the Roth IRA limit

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  • #82476 Reply

      I have just opened a traditional IRA so I can do a back door Roth.

      This is a stupid question, but how do I fund the traditional IRA in the first place? Since it’s pre tax, do I have to set something up with my employer and have it taken from my paycheck? Why would it let me put in after tax dollars into the traditional? How would that work?

      Appreciate any clarification on this.

      Thank you!

      #82478 Reply

        You are just making a non-deductible contribution to the IRA.

        If you were allowed to take a deduction, you would just put money in from your bank account and then the deduction gets sorted out when you file your taxes.

        #82479 Reply

          Traditional IRA is NOT funded with pretax money. Common misconception.

          IRAs are generally individual (hence the I) and outside of employers. You will not find it through your employer.

          You find it with post tax money from your bank account, and then convert it to Roth. If you do it immediately and have no growth, no tax will be owed.

          If one were trying to do a traditional IRA and they weren’t over the income limit, you would still fund it with post tax Mooney, and then get a tax deduction in the amount that you put in.

          #82480 Reply

            Fund your traditional IRA the same exact way you funded your roth. Check? Wire xfer? Transfer from your brokerage?

            You want to fund your traditional IRA with money that is in your brokerage, checking or savings accounts if you plan to do a backdoor Roth. So it should be money that has already been taxed (part of your net pay.)

            #82482 Reply

              You’ll have to open a new standard IRA account (easier if you do at the same place you have your current Roth IRA) and make the contribution from your bank account. Then you simply transfer the money (once the deposit clears) to the Roth IRA which is not a taxable event since you don’t have any gains.

              At TD Ameritrade I can do it all on the mobile app.

              Each broker may be different. At tax time you let the IRS know that you made a non-deductible IRA contribution and that you rolled over money to a Roth.
              One caveat – if you already have an IRA with money in it, there is something called the pro-rata rule that you need to be aware of. Long story short, you can’t do what I said above without owing some extra tax.

              #82483 Reply

                The pre-tax part comes out at tax time. It doesn’t apply if you’re are backdooring though, so just contribute like you usually do. Be sure to double-check the steps at tax time, the first time can be tricky.

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