By Dr. Rikki Racela, WCI ColumnistThe founder of this website is often baffled by the amount of questions/grievances/headaches that WCI followers face when attempting the Backdoor Roth IRA. It seems such an easy process, especially when comparing it to renal physiology or medical pharmacology! The Backdoor Roth IRA simply consists of making a contribution to a traditional IRA and, once that money settles, converting that amount to a Roth IRA. Then, you never have to pay taxes on that money again.
Even though I am financially qualified to be writing this column today, I myself have failed to do the Backdoor Roth. In my defense, I was only just getting financially literate, but I think my experience reflects the experience of many white coat investors when they have questions or concerns or problems when doing the Backdoor Roth. I, like many of you, started somewhere with the Backdoor Roth, and unfortunately, it was a failure. But I got more financially literate and more confident.
Now, I dominate the Backdoor Roth every year, and I'm planning to keep doing so until I stop making qualified income.
Dude, I’m a Failure
It was early 2019 when I finally became financially literate. I had just completed the original White Coat Investor book. Within those pages was the mention of the Backdoor Roth, and after diving into the WCI blog, I saw how Dr. Jim Dahle outlined the simple steps for people who made too much money to contribute to a Roth IRA. Instead, those high earners had to contribute money to a traditional IRA and then convert that to a Roth IRA. However, also within the depths of the blog post, webpages, and the WCI forum were countless nuances and questions regarding the maneuver.
I also needed to get out of two stupid whole life insurance policies, get appropriate true own occupation disability insurance, and buy appropriate term life insurance before getting rid of those whole life insurance policies. There was a lot going on financially, and I had already planned on doing a 1035 exchange, but I still needed a written financial plan to help guide me as this financial thing seemed incredibly overwhelming. Finally, because I was still in the depths of losing money to whole life insurance, there was not really much money to contribute to a traditional IRA and then perform the Backdoor Roth maneuver. My wife and I had just gotten out of $31,000 of credit card debt, and having just learned the concept of three months of expenses for an emergency fund, I was not sure I wanted to risk putting in money for the Backdoor Roth. Money was so tight.
In addition to a not-so-liquid financial situation, there were mountains of questions surrounding the Backdoor Roth looming in my mind. Posts on WCI seemed to answer every conceivable question on the Backdoor, but just like everybody else, my situation was unique. I was making 1099 income with medical surveys and I wanted to contribute to a SEP-IRA to at least take a tax deduction on my 1099 income. But would that be subject to the pro-rata rule? It should not be. According to the WCI blog posts, it only matters if you have money in an IRA on December 31 of the previous year. But I still had my doubts. Also, tax day was fast approaching. Could I make the traditional IRA contribution and then convert that to Roth in enough time before April 15? In the back of my mind, I knew that it should all be OK, but I was still nervous. Add to this that I was short on cash and just becoming financially literate.
So, what happened on April 15, 2019? I failed to do the Backdoor Roth for tax year 2018.
More information here:
My Financial Plan Calls for Me . . . Being Hung by My Fingernails????
The 1 Portfolio Better Than Yours
Dude, I’m a Dominator
Fast forward a few months past Tax Day 2019. I had taken my SEP-IRA and rolled it over into a newly minted solo 401(k), had completed a couple of 1035 exchanges on our whole life insurance policies, and had finished WCI's Fire Your Financial Advisor course (it's freakin awesome, by the way). I had some more financial experience, enough money freed from whole life premiums to fund the Backdoor Roth, a lot more financial confidence, and (most importantly) a written financial plan that specified to do the Backdoor Roth for 2019. This was the result (click on the image to make it larger):
Booyah! My first Backdoor Roth! I also did it for my better half. Highlighted was the conversion from my traditional IRA. Note also in my screenshot that I immediately invested that money once it settled as per my chosen asset allocation. You might also note that this was not really the perfect asset location since I initially had bonds in our Roths (now, it’s all small cap and value equities in there). I subsequently fixed that as I learned more about asset location. Just comes to show you that you don’t need to know everything before doing the Backdoor Roth maneuver.
Shoot, Did I Make a Mistake?
After completing our first Backdoor Roth, I did notice something that caused me a little bit of concern:
Turns out I had an extra $1.97 left over in my traditional IRA. I wondered what I had to do with the leftover money in the traditional IRA? Did I do something wrong? Was this bad? Would I get penalized for this?
Luckily, Jim Dahle had already answered this dilemma in his post Pennies and the Backdoor Roth IRA. The money that had grown just a little bit in the traditional IRA while invested in cash was no big deal. I simply took the $1.97 that was in the traditional IRA and just put it back into my checking account. Now, any extra money that I have, I just convert the whole thing to Roth, pay tax on those few dollars, and end up with a little bit more moolah to grow tax-free.
More information here:
17 Backdoor Roth IRA Mistakes to Avoid
Continuing to Dominate the Backdoor Roth IRA
To this day, my wife and I continue to complete the Backdoor Roth every January 1, as per our written financial plan. I am a big believer in getting the money in as soon as possible and then lump-sum it so it can grow tax-free as soon as possible. We make sure to have enough money and budget for the Backdoor Roth conversion every year. It not only helps to have this in our written financial plan, but I also have grouped up with fellow white coat investors to be accountable for performing the Backdoor Roth maneuver every year as seen by the following text message:
Notice the time and date I sent the confirmation of the contribution to the traditional IRA. I think texting the confirmation to fellow white coat investors that I am friends with really reinforces my plan to lump sum and to complete the Backdoor Roth every year. This also encourages them to do the same. It might seem a little obsessive, and that is probably why I am the one writing this column right now.
Lessons Learned in Performing the Backdoor Roth IRA
There are a few lessons I have learned in order to perform the Backdoor Roth correctly and consistently:
- It’s dirt easy to perform.
- It helps to have this written down as part of a written financial plan.
- WCI is here to help.
- Don’t tell your significant other that, once the ball drops, you are going upstairs to do the Backdoor Roth. It doesn’t go over very well!
Has your experience with the Backdoor Roth been easy? Did you make any mistakes? Did you find the posts at WCI helpful?
Why no bonds in a Roth Rik? Because of growth prospects? The bond interest is tax free when you pull it out right?
yeah dude, bonds are not projected to grow as much as stocks. You want to put the asset class with the highest growth prospects in Roth as that money never gets taxed by the government. Think Peter Thiel! This concept is asset location and of course Jim has already wrote about it: https://www.whitecoatinvestor.com/asset-location/
Taxable bonds would better be served in a traditional IRA or 401k as when you pull that money out that bonds made, they get taxed, but since bonds don’t grow as much as equities, you are paying the government less overall 🙂
Which brings us to an interesting point that Jim mentions in his post. If you have $1mil in stocks in a Roth and $1mil of bonds in a trad IRA, you “think” that your asset allocation is 50/50. But it’s not!!! because the government taxes the trad IRA/401k, and lets assume you’re in the 25% effective tax rate in retirement, you actually have $1mil in Roth, and for the trad IRA you technically own $750,000 of that money. so your true asset allocation is more 57/43 stocks bonds. Proper asset allocation dictates that you are taking more risk! crazy!
Yup, mind blown.
While most people (including me) do fill Roth accounts with high expected return assets, it’s important to realize that you’re kind of just fooling yourself here. Sure, you’ll have higher expected returns doing this, but only because you’re taking on more risk on an after-tax basis.
More here on the topic:
https://www.whitecoatinvestor.com/asset-location/
It’s best to do all your tax moves at the end of the year, because you might have an unexpected tax event during the year that foils your best laid plans. Yes, you give up tax fee appreciation for the year, but you avoid what could be much larger downside. For example, you have an after tax investment in a company with a huge unrealized gain, and it gets bought, so you have a big capital gain you didn’t plan for, then that puts you over the QBI limit, or into a higher tax bracket. Maybe that IRA contribution cash would be better reserved for something else that you didn’t anticipate.
If you wait until the end of the year, the losses you were going to harvest might not be there any more. Like this year.
In the case of retirement account contributions, the earlier you make them, the more time there is for that money to grow in a tax protected way and the more time it sits in an asset protected accounts.
You might also get busy or go in the hospital and not be able to make those moves right at the end.
There are costs to waiting to the last minute.
I’ve done a backdoor Roth IRA for the last few years because all my money is in a Solo401(k), therefore no IRA balances subject to the pro-rata rule.
However, I m currently purchasing an annuity with 401(k) funds.
Both the financial planner and annuity company are calling it an “IRA annuity. “ I think this is just terminology- they seem to call anything purchased from retirement accounts an IRA source. However, semantics matter – Will this Annuity purchase from Solo 401k funds preclude me from doing a backdoor Roth IRA each year?
I don’t think so because the annuity will be titled with the exact same title as the checkbook 401k. Please let me know if it is otherwise!! Thank you.
Does the money leave the 401(k)? I bet it does and therefore will be in an IRA and I suspect will be subject to the pro-rata rule. This post may be helpful to you:
https://www.whitecoatinvestor.com/individual-retirement-annuity-the-solution-to-the-spia-rmd-dilemma/
Here’s what form 8606 says about Line 6:
Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31,
2022, plus any outstanding rollovers. Subtract certain repayments of qualified
disaster distributions, if any, from 2022 Form(s) 8915-F (see instructions) . .
Enter the total value of all your traditional, traditional SEP,
and traditional SIMPLE IRAs as of December 31, 2023,
plus any outstanding rollovers. A statement should be sent
to you by January 31, 2024, showing the value of each
IRA on December 31, 2023. However, if you
recharacterized any amounts originally contributed, enter
on line 6 the total value, taking into account all
recharacterizations of those amounts, including
recharacterizations made after December 31, 2023.
For purposes of line 6, a rollover is a tax-free
distribution from one traditional, traditional SEP, or
traditional SIMPLE IRA that is contributed to another
traditional, traditional SEP, or traditional SIMPLE IRA. The
rollover must be completed within 60 days after receiving
the distribution from the first IRA. An outstanding rollover
is generally the amount of any distribution received in
2023 after November 1, 2023, that was rolled over in
2024, but within the 60-day rollover period. A rollover
between a traditional SIMPLE IRA and a qualified
retirement plan or an IRA (other than a traditional SIMPLE
IRA) can only take place after your first 2 years of
participation in the traditional SIMPLE IRA. See Pub.
590-A for more details
So I guess if they send you a statement at the end of the year with your account value, you’ll have to put it on line 6.
What’s up with the language? Dude? Sorry, doesn’t read well but maybe others “dig it”. Cheers bro.
I agree. The language and grammar are terrible.
Different writing styles make the world go ’round. Variety is the spice of life. Etc., etc.
I like Rikki’s writing style, because it brings a completely different flavor to the site. Which is a good thing.
Ha! the dude abides! I tend to say dude a lot, it’s true. People mistake me from being from Cali but I am from NJ. actually, I tend to be colloquial in general. I only pretend to be smart and I usually hate fancy words and want to make things as easy and unintimidating as possible. I figure when I use fancy words like “non-deductible traditional IRA contributions” and “rollover to backdoor Roth IRA” it might help to use a few “dudes” in there to lighten the mood.
Can I convert to a backdoor Roth from funds in a self directed IRA?
The IRS will have no problem with that. Whether the self directed IRA custodian can handle it or not is a separate question. But they can probably do it. It might not be as slick as doing it at Vanguard, Fidelity, or Schwab though.
I just got off the phone with Vanguard (for the third time this week) and apparently they have a new policy where they put up to a seven day hold on funds when you move it into an account to prevent money laundering. In years past you could do an immediate conversion yourself online or call them to help. So this year’s backdoor roth conversion accrued a small amount of interest ($0.94) in the money market account while it was in the traditional even though I initiated the conversion to the roth within an hour of it being released for the trade. Small annoyance, but the good news is they won’t bother issuing a 1099 for any capital gains less than $10. Just a FYSA since I immediately went to WCI to see if anyone else had written a post on this. Fidelity does a hold between the accounts in my non-prototype solo-401k accounts as well citing an increase in fraud. I imagine all the financial institutions have similar policies now.
I’ve had this issue before. No big deal. There’s an entire post about it.
https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/
It’s not a capital gain though. It’s ordinary income. Just move the 94 cents to your Roth IRA and you’ll owe tax on $1 more. Or don’t, get prorated in a tiny way and move it over next year.
I clicked the “transfer all” box when making the trade and $6500 was listed in the traditional…then when I received notification that the transfer was complete, it stated $6500.94 was moved to the roth. Sounds like there’s no way to do it any faster with the new hold rules. Oh well, it’s an inconsequential amount. Vanguard CSR called it a gain, but I guess it makes sense that the interest would be taxed as ordinary income as well.
I think you did the right thing. I agree, it’s a gain, and it’s taxable, but it’s not a capital gain.
Ugh…now what!?
Due to BRA, aka Backdoor Roth Anxiety, along with trying to figure HOW to find my T-IRA basis vs. earnings, etc. I failed to contribute to my T-IRA and then convert it to my Roth IRA (via backdoor) prior to the end of 2023. I KNOW that I can still contribute to the T-IRA and convert it to my Roth IRA in ’24 for the 2023 year. But a few questions:
My summary:
To avoid pro-rata rule, I intend to do the following:
Transfer previously contributed SEP-IRA (made NO contributions to this in 2023, only in years prior) to my newly opened (in 2023) office 401K.
Transfer the earnings from my T-IRA into the office 401K.
Transfer the T-IRA non-deductible contributions (from year’s past) into the Roth IRA
THEN – make a T-IRA contribution $6500 into the T-IRA as per 2023 max contributions (into settlement fund) then when cleared (at Vanguard) convert this into my Roth IRA (for 2023).
THEN make a T-IRA contribution for 2024 of $8000 (yep, I am turning 50 this year; so $7K+1K catch-up) and then convert that into my Roth IRA (for 2024).
Questions:
1) How do I go forward to ensure I complete the tax forms (aka ensure my accountant correctly files them) for 2023 (and 2024)?
2) Is the ONLY way to confirm what are non-deductible contributions to my T-IRA vs the earnings (which is at Vanguard) is to review ALL statements to confirm how much $ was non-deductible contribution and then subtract the rest?
3) Do I need to SELL these funds prior to transferring the $$ to my office 401k? Since I was told by the 401k company (401go.com) that they can only receive a check from Vanguard.
UGH… help needed, especially on #’s 2 and 3.
Thank you!!
1. Just look at the bottom lines. If no taxes are due, then it’s probably filled out right. Basically the contribution for 2023 will go on the 2023 8606 and the contribution for 2024 and both conversions will go on the 2024 8606.
2. No, probably not. Why? Is part of your contribution deductible or something? Usually for most of us the whole contribution is non deductible so it’s easy to keep track of. And it should have been kept track of on an 8606 every year.
3. Usually yes. Just cash is transferred.
Thanks for the response.
And yes, #2 – Most of the t-IRA are non-deductible contributions from past years, however, the earnings are taxable IF I were to convert those to the Roth IRA. So, once I can confirm what is non-deductible, then the remainder are earnings that I can transfer to my office 401K (without that being taxable).
Or, even if you want it to be even simpler, just convert it all and pay tax on the earnings.
Considered that but it’s about $10K in taxes or so, would rather defer until in lower tax bracket (potentially).
Thanks!
If you do it carefully, you should be able to isolate the basis. Just realize that nobody you call on the phone is going to understand what you’re doing and it needs to be reported correctly on taxes.
I have been wanting to begin funding a backdoor Roth for a few years now. My issue is that in my first job (and before I had any financial literacy), my first employer put money into a SEP-IRA which my financial advisor then put into a variable annuity. I have had it now long enough that I won’t be penalized if I cash it out. I think it would be in my best interest to either transfer it into my current 401K (Vanguard), cash it out and put the money in my 401K or an IRA if possible , or just cash it out so that I can start making Roth contributions. I saw Rikki has had a similar situation on his post about his financial plan, and am hoping he might have some advice on where to start. Any advice is greatly appreciated!
I think it’s fine to cash out of the VA, but i wouldn’t pull that money out of the retirement account. I’d just roll it into a 401(k).
Some advisor eh?
Hey Scott just following up on Jim’s suggestions- did you cash out the VA within the SEP-IRA, then rolled over that cash in the SEP-IRA into your 401k? if so then boom! do the backdoor roth for this year! 🙂
I really appreciate you following up. So here’s the update: I got very nervous I was going to mess something up and ended up sitting on this. I did find a fee-only financial advisor here locally in Fort Worth who reviewed my current financial situation and made some recommendations. What is weird is that he just stop corresponding with me (?). I have reached out a few times bc I have a bunch of follow up questions and haven’t even paid for the advice.
PArt of the advice I got was to consolidate my accounts to 1 or 2 financial institutions. I chose Schwab and Vanguard mainly bc my 401K is at Vanguard and I can have a self-directed account at Schwab as up until a few weeks ago my HSA investment account was with Schwab (now HSA bank is doing the HSA investment accounts in-house). The SEP-IRA is in an account with Equitable and it is difficult to surrender the account without having to contact the financial advisor which feels time consuming and I would rather avoid the awkwardness. Alternatively, I could move it into a rollover IRA at Schwab and then transfer it to my Vanguard 401K or perform a backdoor Roth conversion (?)
I wanted to see if I could get some guidance from you on a few of the recommendations. Quick background – I fully fund and my group fully funds my employer sponsored 401K and HSA every year. I had previously told them I was curious if I could reduce my work to 50% at 55 versus 75% at 55, then 50% to 65.
1. The advisors recommended that I “focus on increasing my exposure to liquid, non-retirement assets if early retirement is a high priority for me” by continuing to fund the 401K and HSA, but not funding a personal and spousal Roth IRA. Thoughts on if I should fund backdoor Roths and then the taxable account vs just put money in the taxable account?
2. I am really struggling with the asset allocation. They recommended the following:
For tax deferred accounts: TSM – 60%, total int stock index – 15%, Total bond market index – 20%, and REIT – 5%
For taxable accounts – Large cap index – 45%, mid cap index – 10%, small cap index – 5%, Int developed 10%, Int EM – 5%, US bond index – 15%, Int bond index 5%, and RE index 5%
These allocations seem reasonable, but I am similar to Rikki in that I have a very high risk tolerance (I’ve been through the tech bubble, WTC attack, subprime crisis, debt ceiling crisis, 2018 Q4 sell off, coronabear, and recent Inflation downturns/bears and just kept DCAing as usual), so I was planning to be 100% equities until age 55 or 60, and then slowly introduce bonds up to a 60/40 or 50/50 at age 65 (bond tent).
I was thinking of something like TSM 60%, US SCV 15%, TMI 20%, Int SCV 5% until age 55-60, and then start adding bonds like Jim does (1:1 nominal:TIPS). The allocation is kind of a blend of yours and Jims.
Let me know what you think and I really appreciate the followup.
Oh boy, where do I begin with the advisor’s “advice” from Fort Worth. Not totally bad advice but still not optimal for a so called advisor that does this for a living. Let me start with the parts I agree with: it does makes sense to consolidate accounts to 1-2 institutions to simplify your life and max out 401K/HSA. However, the other advice is not right:
1. If early retirement is important for you, why not do the backdoor Roth? You do have to keep the money untouched for 5 years in the Roth, but it doesn’t seem you are retiring in 5 years, are you? even if you were, you could just keep more cash on hand/bonds in your taxable account and draw from your taxable account until you could take out your roth money if you needed it. Just doesn’t make sense. I would do the backdoor Roth for you and your spouse.
2. The asset allocation overall is reasonable, but the advisor’s asset LOcation is highly questionable. REIT’s give off a lot of fully taxable income and should be in a tax advantaged account. Same goes with the bonds. If you had to keep any bonds in taxable to make sure they are accessible, would recommend a municipal bond fund so the income from the bonds won’t be federally taxed. Also the small and mid cap should be in tax advantaged as well. TSM and international equities are super tax efficient so should go in taxable. I actually like your asset allocation better too given it’s simplicity.
3. Did the Fort Worth fee only advisor not tell you to contact Vanguard to “pull” your money out of Equitable? Usually that can help you avoid your salesman at Equitable as Vanguard will contact them directly. When I had my whole life policy, I did have to have to contact Northwestern Mutual’s 1035 exchange unit, as well as their general number for an in-force illustration, but I didn’t have to talk with my buddy at all. I suspect you could avoid that unpleasantness as well. Also, you do not take this money in the SEP-IRA and rollover to your Schwab IRA. that’s an unnecessary step . Just get Vanguard to pull that SEP-IRA into your 401k.
It’s good you didn’t pay for the Fort worth advisor, at least from my perspective.
I tried to call Vanguard and they told me to contact Equitable and request the surrender. I just need to call and get it over with. Thank you for your input on the other questions. I think I have a plan in place that I can start carrying out.
1. Not as big a deal as many think. https://www.whitecoatinvestor.com/early-retirees-max-out-retirement-accounts/
2. I prefer to look at AA as one big account including all accounts being used for the same purpose, in this case retirement, not a separate AA for every account. I don’t see an issue with either of those asset allocations. But they’re not 100% stock. If 100% stock is right for you, those asset allocations aren’t for you. More on 100% stock here: https://www.whitecoatinvestor.com/100-stock-portfolio/
Hello,
I am filing as married filing jointly. Our income will be closer to or in the range of “phase out “. I won’t be able to calculate exact amount as I do locum/per diem jobs. Can I do back door Roth to be safe? Can I do back door even if my income still allows me to do traditional Roth IRA when I find out in the end?
And if I have already put money in traditional Roth IRA and later find out my income is either in phase out or does not qualify, can I withdraw from my Roth IRA account and move to IRA account?
Thanks in advance.
Myat
Yes.
Yes.
Yes.
If there’s any doubt, just do it via the Backdoor.
I made too much money and mistakenly contributed directly to a Roth IRA with monthly transfers for this entire tax year (2023). I’ve removed those contributions and I’m ready to re-invest in a T-IRA > Backdoor Roth Conversion.
1) If I perform this now (1 month prior to 2023 tax return deadline), will it still count towards the 2023 tax return?
2) Based on this WCI column, Rikki does his Roth conversion on January 1. If I did something similar starting 1/1/2025, would this Roth conversion be included in my 2024 tax return? In other words, I just want to make sure that if I put funds into a (Backdoor) Roth now and early next year, I wouldn’t be doing it twice for the same tax year.
Thanks!
1. No. Conversions are taxed in the year in which you do the conversion. No big deal. You should still do it.
2. No. Conversions are taxed in the year in which you do the conversion. When Rikki (or me or anyone else) says he does the Roth IRA process in January 2025, he’s talking about making his 2025 contribution in January. You can make a 2025 contribution at any time between January 2025 and April 2026. Once you make a contribution, there is no point waiting any longer than your IRA custodian requires you to to do the conversion step. So most of us do the conversion within a week of the contribution.
There is a limit and a deadline for the contribution step. There is no limit nor deadline for the conversion step.
And “I made too much money” is a great problem to have. May everybody have that problem.
Thank you for taking the time to reply! Very helpful.
When moving money out of a roll-over IRA to the roth in order to avoid the pro-rata rule, should I call the company and pay taxes now, or just wait till tax day and see what happens? About what tax rate should I expect on the conversion? thx
Wait til tax day as a general rule, but keep in mind safe harbor issues. You might need to make a quarterly estimated payment to avoid a penalty.
https://www.whitecoatinvestor.com/estimated-taxes-and-the-safe-harbor-rule/
Hey GSC MD, I would just roll over to your work retirement plan 401k or 403b if you can to avoid the pro-rate rule. No tax!
So I have a Fidelity Roth IRA I funded for the first time in 2023 with only $800 (not backdoor). I was nervous to contribute more as I became aware that I was getting close to the income threshold and would be better off doing a backdoor contribution moving forward. I also had a small $6,000 traditional rollover IRA from an old job which I then converted to my Roth this past December of 2024 – I did this when I became aware of the pro rata rules and plan to pax the taxes on it. I now dont have any other traditional IRAs so I believe im clear to do the backdoor Roth contribution moving forward without pro rata rules impacting. Correct me if I’m wrong.
My question is if I were to do my first full backdoor Roth contribution now (February 2025), should I make it a 2025 or 2024 contribution. I plan to dump in the full 7,000 contribution now and then convert it right after. It sounds like it is simpler with the tax forms to just make it my 2025 contribution according to what I read on this website – so that my contribution and conversion are the same year. Am I thinking about this incorrectly and is it advantageous instead to be making this my 2024 contribution. My plan is to contribute the next max amount next year in January of 2026 around this time. Thanks in advance
Well, you should now know if you’re over the threshold for 2024, no? But either way, I’d do a contribution for 2024 AND 2025, whether you have to do it via the backdoor or not. Then you can do 2026 in Jan 2026. So put $6,200 in for 2024 and $7,000 in for 2025 and convert the whole shebang.
Can you please explain why paying taxes now as a high earner to convert to Roth is preferable to paying taxes later when one is likely no longer a high earner? I’m sorry for this basic question. I feel unprepared to debate why when questioned about wanting to do this. I currently have 2 rollover IRAs, 1 sep-IRA, two 403b’s, one 457, and about to start a new job that offers a 401k.
It often isn’t. This is the most complicated topic in personal finance, so no surprise you had trouble when asked a very good question. I have trouble answering it too without a lot more information about the person and even then it’s still impossible to answer.
You might consider transferring those rollover IRAs and SEP-IRAs to the new 401(k) (and maybe those 403bs too and that 457 if it’s governmental.) That will facilitate the Backdoor Roth IRA process without getting pro-rated and simplify your portfolio management. More info on that here:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
But as far as classic Roth conversions that actually cost money in taxes to do, this post will help you understand how to decide whether or not to do one.
https://www.whitecoatinvestor.com/roth-contribution-or-conversion/
Thanks doctor. My FA stated transferring my rollover IRAs and SEP-IRAs to the new 401k is a taxable event so we are going to continue the discussion after discussing with a tax person!
Sounds like you need a new FA who understands that rolling money over from one tax deferred account to another doesn’t generate any tax bill.