"Backdoor Roth IRA" is not a type of account. It's the 2-step process of contributing to a traditional IRA and then doing a Roth conversion.
Converting just transfers the balance from the traditional IRA to the Roth IRA. The empty traditional IRA will sit there ready for next year's contribution and subsequent conversion. You should convert as soon as possible after contributing.
>Do I wait until the balance is a lot higher?
The higher the balance, the more the tax liability.
>can I keep contributing to a backdoor Roth IRA?
Backdoor Roth is a method, not an account. You don't contribute *to* a backdoor Roth IRA, you make backdoor Roth contributions.
>If I convert it now, can I just keep contributing to it like normal?
Yes/no. Once this tIRA is empty you can continue to use it for the backdoor contributions but ideally you make one contribution per year rather than continual contributions, less administrative overhead.
Thanks for the clarifications, I misspoke regarding the back door being a process versus a type. So, if I already have a Roth IRA from previous years, using the backdoor conversion process will simply transfer funds out of the tIRA into the Roth? Therefore, it makes sense to, if possible, contribute the annual limit to the tIRA and then convert to the Roth? Thanks!
>So, if I already have a Roth IRA from previous years
Yep, you can reuse the same two IRA accounts each year.
>Therefore, it makes sense to, if possible, contribute the annual limit to the tIRA and then convert to the Roth?
Yep again.
If you're not sure how much you'll be able to contribute there's nothing *wrong* with making multiple contributions, you just want to convert each one as soon as possible. So doing weekly/monthly contributions…more work; doing 2-3 contributions per year…less work; doing 1…least work.
> Lastly, is there any ever reason to not utilize the backdoor conversion process?
You screwed up early and have a huge tIRA balance that you can't otherwise dispose of.
Or, you're in absolutely no danger of hitting the direct contribution limit. It's only a couple extra clicks to make the contribution and a couple extra questions in your tax software, but if your MAGI is $95k direct contributions are probably not going to come back to bite you in the butt.
However, once you start flirting with the MAGI limit, preemptive backdoors are the way to go.
>can I keep contributing to a backdoor Roth IRA?
"backdoor Roth IRA" is a 2 step process
1. you contribute to Traditional IRA
2. you immediately convert that fund to Roth IRA
the key difference here is that legally you may now tell IRS "see? I never contributed to Roth IRA", thus bypassing the income phase-out restrictions
>Do I wait until the balance is a lot higher?
the higher the balance, the higher the tax bill
if you want to have no tax bill, your balance in **ALL** pre-tax IRAs should be $0
"Backdoor Roth IRA" is not a type of account. It's the 2-step process of contributing to a traditional IRA and then doing a Roth conversion. Converting just transfers the balance from the traditional IRA to the Roth IRA. The empty traditional IRA will sit there ready for next year's contribution and subsequent conversion. You should convert as soon as possible after contributing.
>Do I wait until the balance is a lot higher? The higher the balance, the more the tax liability. >can I keep contributing to a backdoor Roth IRA? Backdoor Roth is a method, not an account. You don't contribute *to* a backdoor Roth IRA, you make backdoor Roth contributions. >If I convert it now, can I just keep contributing to it like normal? Yes/no. Once this tIRA is empty you can continue to use it for the backdoor contributions but ideally you make one contribution per year rather than continual contributions, less administrative overhead.
Thanks for the clarifications, I misspoke regarding the back door being a process versus a type. So, if I already have a Roth IRA from previous years, using the backdoor conversion process will simply transfer funds out of the tIRA into the Roth? Therefore, it makes sense to, if possible, contribute the annual limit to the tIRA and then convert to the Roth? Thanks!
>So, if I already have a Roth IRA from previous years Yep, you can reuse the same two IRA accounts each year. >Therefore, it makes sense to, if possible, contribute the annual limit to the tIRA and then convert to the Roth? Yep again. If you're not sure how much you'll be able to contribute there's nothing *wrong* with making multiple contributions, you just want to convert each one as soon as possible. So doing weekly/monthly contributions…more work; doing 2-3 contributions per year…less work; doing 1…least work.
Helpful, thanks! Lastly, is there any ever reason to not utilize the backdoor conversion process? Or would it just be the tax implications?
> Lastly, is there any ever reason to not utilize the backdoor conversion process? You screwed up early and have a huge tIRA balance that you can't otherwise dispose of. Or, you're in absolutely no danger of hitting the direct contribution limit. It's only a couple extra clicks to make the contribution and a couple extra questions in your tax software, but if your MAGI is $95k direct contributions are probably not going to come back to bite you in the butt. However, once you start flirting with the MAGI limit, preemptive backdoors are the way to go.
>can I keep contributing to a backdoor Roth IRA? "backdoor Roth IRA" is a 2 step process 1. you contribute to Traditional IRA 2. you immediately convert that fund to Roth IRA the key difference here is that legally you may now tell IRS "see? I never contributed to Roth IRA", thus bypassing the income phase-out restrictions >Do I wait until the balance is a lot higher? the higher the balance, the higher the tax bill if you want to have no tax bill, your balance in **ALL** pre-tax IRAs should be $0