By Dr. James M. Dahle, WCI Founder
It is not much different to do a Backdoor Roth IRA at Fidelity than it is at Vanguard, Charles Schwab, or anywhere else. The first step, of course, is making sure you have both a traditional IRA and a Roth IRA at Fidelity. It should only take a few minutes to open those up. Start with the traditional IRA.
Step 1: Contribute to Fidelity Traditional IRA
First, log into Fidelity. Then click on “Open an Account” at the top.
Select “Open a Traditional IRA.” On the next page, confirm your personal information and hit confirm.
Agree to the electronic delivery and open the account. Easy peasy.
You should now see it on the left side of the screen with your other Fidelity accounts.
Next, you'll need to fund that traditional IRA. It's easiest to just transfer it from your checking account.
Now you have $6,000 [2021 individual contribution limit] in your traditional IRA. You'll probably need to leave it in the traditional IRA one business day until you can see the $6,000 actually in the account. Now you just need to convert it to a Roth IRA.
Step 2: Convert Fidelity Traditional IRA to Roth IRA
If you don't yet have a Roth IRA at Fidelity, you can open one up from the exact same place you opened up the traditional IRA from.
Log back in the next business day and hit “Transfer” at the top.
Just transfer $6,000 from your traditional IRA to your Roth IRA.
Do not have taxes withheld because there will not be any due.
Convert the entire balance. Be sure to leave the account open for next year.
Step 3: Choose Your Fidelity Roth IRA Investments
You can now invest it into your preferred investment within the Roth IRA in the usual manner.
If you have a question about the Backdoor Roth IRA and not Fidelity specifically, you should FIRST read this very in-depth Backdoor Roth IRA Tutorial before asking your question in the comments below. I promise you there is a 99% chance your question is answered there.
What do you think? Do you do your Backdoor Roth IRA at Fidelity? Why or why not? Comment below!
So once you have completed the back door you can then go ahead and contribute the 6k to the traditional opened and invest that?
Now the following year will you have to open two completely new IRAs or just a new Roth? Or do you simply use the two previously opened IRAs and do the steps over and over again?
I’m overthinking this?
Thnaks
More info on the Backdoor Roth IRA process here:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
Basically, put $6K into a traditional IRA, then move that $6K to a Roth IRA and that’s it for the year.
How complicated will it be if I do monthly contributions/conversions as oppose to 1 lump sum of $6k? Will I need to fill out the 8606 form for each individual contribution? Is there a downside to doing monthly contributions (say 12, $500 contributions or 6, $1,000 contributions?) Thanks for your help!
Just a little more complicated.
No.
Yes, you have to do a lot more contributions and conversions (or the money just sits in cash.)
If you make enough that you have to do your Roth IRA via the Backdoor, you make enough to lump sum it all at once.
This is a fantastic guide, thank you. One question that has me head scratching— I thought the main idea here is that funds directed to a Roth IRA are taxed at time of contribution. So why is it that we are not checking the “I elect not to have taxes withheld…” box. Your comment, “Do not have taxes withheld because there will not be any due.” seems to be contrary, or am I misreading what that box means? Appreciate it!
You paid the taxes when you earned the money. So you don’t need to pay them again when you do the Roth conversion of those same dollars. If you have money withheld, you will just end up with less in your Roth IRA.
Paid the taxes when you earned it? What about 1099 work?
The point is that you’re contributing post tax money to your traditional IRA so there is no tax bill when you do a Roth conversion on those same dollars. You’ll obviously still have to pay taxes at some point on the money you earned that year if you have no yet done so.
Hope that helps.
So when I go to convert the money from my IRA to my Roth that pop up to elect not to have taxes withdrawn doesnt come up it just says :
Tax withholding information
You may need to pay taxes on funds that haven’t been taxed when you convert your IRA to a Roth IRA, even though you’re not taking a cash withdrawal from your IRA.†
It’s usually a good idea to avoid paying taxes upfront on the money you’re converting to your Roth IRA. If you pay taxes now, you’ll have less left in your Roth IRA to potentially grow tax-free, and if you’re under 59½, you’ll also have a 10% penalty for withdrawing money early.
If you’d still like to pay taxes now, you can call Fidelity. Learn more about Roth IRA taxes
Do I just continue? Is there somewhere else I can make sure its not being taxed?
THANKS!
Sounds like Fidelity is helping you do the right thing to me. Just continue. It won’t be taxed so you definitely don’t want anything withheld.
It’s been a few business days since I’ve transferred $6,000 from my bank into the traditional IRA. Do I have to wait until “Cash available to withdraw” shows $6,000 before the conversion step? It is showing $0 currently
Probably not. Go ahead and try.
You do have to wait. Same thing happened to me last week. For some reason it ended up taking 8 business days for it to show up before I could go through with the conversion.
Yes, you do have to wait a few days. Mine was partially funded initially. Then I did a rollover on mine the next day after fully funding (to $6000), however only the partial amount was transferred. Even though the proposed transaction ledger from Fidelity estimated the amount to be the full $6000, it was not upon receipt of the transfer. I called Fidelity and they said the newly deposited funds take a few days to clear. They recommended doing a second transfer/rollover for the rest of the funds once they cleared. Hoping this doesn’t cause any tax issue doing the second partial rollover.
Hello, thanks for this post.
I contributed some after tax dollars into
My 401k. I then rolled over the after tax dollars into a Roth IRA and the minimal
Earnings into a traditional Ira. Should a form 8606 be completed immediately or is it only in the year of distribution/withdrawal? Thanks
You do the 8606 when you do your tax return each year.
Thanks for responding. Is the 8606 not just for when a contribution is made? I did not realize it was required even for years with no contributions made. Does it apply to direct rollover of after tax contributions with zero earnings to a Roth IRA?
Thanks again.
If you made non-deductible contributions to an IRA or still have non-deductible money in an IRA, you’ll need to do a Form 8606 for that year. It tracks your basis and you want your basis tracked.
For back door Roth IRA: when money can be transferred from traditional IRA to Roth. Should I only do end of the year Or Dec 31? It any time?
Any time, but I’d do it by December 31st as it may go away this year.
I did my conversion for 2021 in December 2021.
Can I open Roth IRA account for 2022 and do the backdoor Roth IRA conversation any time in 2022? Curious if there is there any deadline? Trying to see if I can do it before tax filing dead line so I can report conversion for 2021 and 2022 in same tax year?
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
If you did a conversion in 2021, you report it on your 2021 taxes. But if you did a contribution in 2021 and didn’t convert it, you could do two year’s worth of a conversion in 2022 and report it on your 2022 taxes.
Hi 🙂 I had a traditional IRA With a former employer and now have it in my fidelity as a traditional IRA. Can I still move it to my Roth without taxing or do I have to have taxes withheld? And if I already contributed $6k this year to my Roth can I still convert that traditional IRA (it’s $2600). Thanks!
The Roth conversion will be a taxable event, but you don’t have to have taxes withheld. You can pay them from other money.
Yes, you can still convert it. Make sure your income is low enough to contribute directly to a Roth IRA if you did so or you’re going to have a mess.
Hi, I started up my practice in 2020. For the last 2 years, I have not taken a salary. Can I open and contribute to a traditional IRA and convert to a Roth IRA for the year of 2021? Also, can I contribute directly from my business checking account? Thanks!
Do you or your spouse have at least $6K in earned income? If so, then yes you can make an IRA contribution. If no, you can’t. You can then do a Roth conversion if you like.
I wouldn’t contribute from the business checking account. Nobody will probably care, but it’s a personal thing not a business thing and best to keep them separate.
If you already have a traditional IRA with pre-tax dollars and set up a separate traditional IRA with after-tax dollars to convert, does the IRS still tax a percentage of the conversion? I read the IRS looks at your total traditional IRA balance regardless of separating out before and after tax accounts.
You still get pro-rated. You report ALL of your IRAs on line 6 of Form 8606.
If you already have a Roth account, do you just make a new IRA every year and dump the 6k into the existing Roth?
Yes.
If have a significant sum of money invested in both a Roth IRA (started in medical school) and later opened a traditional roth but I never did a back door all this while. Is it too late to back door? Is there a time frame or amount limit to do a back door?
Your terminology makes it hard to answer your question. These terms all have specific meanings. For example, I have no idea what a “traditional roth” is, so I assume you mean traditional IRA. But if you have a traditional IRA, you need to do something with it by the end of the year in which you do the Roth conversion step of the Backdoor Roth IRA process. That means either rolling it into a 401(k) or paying the taxes on it and converting it into a Roth IRA. More info here:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
Earlier this year, I opened a roth IRA and have contributed $2200 to it so far. This week I realized my MAGI will exceed the IRS limits and I am not eligible to contribute to a roth. I have put in a request to recharacterize my contributions to a traditional IRA. Once Fidelity recharacterizes the contributions, can I then transfer them back to the roth?
Hi. I’m in a similar situation. What did you end up doing?
Yes, what most people do in this situation is recharacterize the contribution, add the rest of the annual contribution, and then convert it all. More details here:
https://www.whitecoatinvestor.com/ira-recharacterizations/
This is the first year as an attending I want to try this. I’ve had a Roth account for years with Fidelity. Can I do the conversion to an existing Roth already with investments in it (or create a new Roth?)? Similar question about the Traditional IRA… I have one already but it’s empty, can I use this or should I set up a new IRA?
Yes. You can use both your existing traditional IRA and your existing Roth IRA to do this Backdoor Roth IRA process. However, if the bill currently in Congress goes through, this may be the last year you can do so so be sure to get the conversion step done before the end of the year.
Great article. I’m late to the Roth IRA game. I maxed out my traditional 401k (with catch up contributions) and set up after tax payroll deductions to fund a (backdoor) Roth IRA after speaking with a Fidelity advisor. Two Qs: It looks like the after tax deductions are going into my traditional 401K account. Should they be going into/need to be moved into a separate/new Roth account? If my payroll deductions don’t reach the maximum allowed before the EOY should I follow the above steps to open a new account and complete the funding with a lump sum payment?
You’re referring to a Mega Backdoor Roth IRA, not the “standard” Backdoor Roth IRA, although Congress is talking about getting rid of both of them after the end of this year. More details here:
https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
https://www.whitecoatinvestor.com/is-the-backdoor-roth-ira-in-danger-of-being-wiped-out/
1. They should go into a separate after-tax account, and then you can convert them to a separate Roth account. Three accounts/sub-accounts: tax-deferred (all taxable on withdrawal), Roth (none taxable on withdrawal), and after-tax (gains taxable on withdrawal).
2. You can’t open your own 401k if you’re just an employee with no self-employment income. Again, it appears you are confusing a Mega BDR with a standard BDR. If you can’t max out the Mega BDR, that’s too bad, but it has nothing to do with how much you can put into an IRA. That amount is $6K for 2021 ($7K if 50+).
Thanks for the Mega BDR info. In this case Fidelity clarified my previous conversation and enrollment at that time in their automated Roth In Plan Conversion option. My after-tax contributions are added to my 401K then instantly converted. Details on this service can be found here: https://nb.fidelity.com/bin-public/070_NB_PreLogin_Pages/documents/tva_RothInPlanConversionGuide.pdf
Cool!
Great site, I recently came across your site through online search.
I am looking to do back door roth IRA for myself and my wife for 2021.I am assuming i cannot do it for year 2020 as i already filed my taxes earlier this year and it might be too complicated to fix it now. When should I open an traditional IRA account and do the conversion for year 2021? Should it do it before end of 2021 or first week of 2022? In similar vein, what is the ideal time to do backdoor roth IRA for year 2022?
Sincerely appreciate your response. Apologies this was covered in any of your other posts.
Yes, get your 2021 done before year end.Too late for 2020. Don’t wait because Congress is probably going to change the rules as of Jan 1. You may not be able to do a 2022 BD Roth at all.
Thank you, i opened my backdoor roth IRA using your feedback. How often can we trade from this account? Does capital gains matter since its an retirement account? For example, i am looking to buy some hipotential growth stocks such as Tesla or Apple on dips and trade them as needed on short term for growth. Curious if i should be worried about capital gains if i am not taking any money out of the roth IRA now ?
As often as you want.
No.
I wouldn’t buy individual stocks if I were you: https://www.whitecoatinvestor.com/individual-stocks-dumb/
No.
Thanks for great article and advice. Based on this article, I am convinced that I should not invest in individual stocks. Do you have any suggestions for index funds or mutual funds for the Roth IRA? Especially from funds joins in fidelity? Appreciate if you have any articles or links you can guide me to.
Fidelity has several low cost, broadly diversified index funds. There is a total stock market fund, a total international stock market fund, a total bond market fund etc. They also have versions that have an expense ratio of 0%.
https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds
Thank you so much. Can you please post the sticker names ? Are you referring to zero fee funds by fidelity? FZROX?
Yes, FZROX is the Zero TSM fund. The other TSM fund is FSKAX. Either is fine. More info here:
https://www.whitecoatinvestor.com/expense-ratios/
I recently opened a traditional IRA ( about a week ago) at Fidelity, made my 6,000$ contribution, and after reading about Backdoor Roth IRA on another site I opted not to do the conversion. I invested the money. Now after reading this article I’m wishing I would have gone the Backdoor Roth route. Can I still do the conversion if the money is invested? I made less than a 100$ on my investment so far. And if it is too late for this year, could I still transfer to a Roth next year? (Make a new 6,000$ contribution and then convert that amount, while keeping this year’s money invested?)
My apologies for the complicated question. Should have come on your site first.
Thanks for all that you do
Yes. You’ll owe taxes on less than $100.
I’ve been doing the backdoor roth IRA for a few years and now trying to set up for my husband with Fidelity. We opened a traditional IRA and contributed to that, and are now trying to open a Roth IRA. Fidelity is saying that we need to “fund” that in order to open it but there is no option to transfer from an existing Fidelity account – only options are transfer from a checking/savings account, from another institution, or from wire transfer. Can we just deposit $1 from our checking account directly into the Roth IRA in order to “open” it? Or does this create problems at tax time? I keep my accounts open from year to year so I haven’t had to deal with actually creating a new account.
Ask for a new representative. It is routine to fund a new Roth IRA with a conversion. You’re not allowed to make other contributions to it.
This is my first year attempting to do a Backdoor Roth IRA. I followed the steps (opened a traditional IRA, added 6K, opened a Roth IRA and then transferred the money) for the backdoor portion, but I separately have a rollover IRA with ~4K invested in it. To avoid the “pro-rata” and make sure my IRA’s are at zero by EOY, do I transfer that rollover money to the same Roth IRA I just opened for the backdoor transfer (so the total will be ~10k)?
Yes. You’ll owe taxes on $4K of income.
Thanks!
I am in a similar situation as above. I have $4600 in a rollover IRA. Should I contribute $1900 to the backdoor roth process to make the total $6500? Will I still be taxed on the $4000?
Contribute $6,500 for 2023, then convert all $10,900 and pay tax on the $4,600 (perhaps $1500 in tax).
Thank you very much for the website and this article. i am in my first year as an attending. i contributed monthly to an IRA and now i would like to convert to Roth IRA. i however invested the money.
There’s an option to “pay taxes now” or defer and “pay taxes later”. i am confused as to which of these options to opt for.
It’s no longer giving the two options regarding taxes, the only options is:
Tax withholding information
You may need to pay taxes on funds that haven’t been taxed when you convert your IRA to a Roth IRA, even though you’re not taking a cash withdrawal from your IRA.†
It’s usually a good idea to avoid paying taxes upfront on the money you’re converting to your Roth IRA. If you pay taxes now, you’ll have less left in your Roth IRA to potentially grow tax-free, and if you’re under 59½, you’ll also have a 10% penalty for withdrawing money early.
If you’d still like to pay taxes now, you can call Fidelity. Learn more about Roth IRA taxes
I understand that I’ll likely have to pay taxes later
It makes you check that final statement- is this still correct? Thanks
This is good article and all your guidance is very helpful.
My question is with regards to backdoor ROTH IRA conversion. I had Traditional IRA contribution (around 24K) from earlier years which I rolled over to my employer 401K last month. Now I would like to contribute backdoor ROTH IRA for this year. My MAGI for this year is beyond Roth contribution limits eligibility. Can I contribute 6K via backdoor Roth IRA? or due to TIRA, I have limitations on Roth contribution and/or pro rated taxes? Please advise.
Yes. Your big trouble will be getting it all done before the end of the year. Maybe better to wait until next week at this point since it doesn’t look like Congress is closing the door on these, at least not yet.
So wait till next year and contribute for 2021 before April2022?
Yes.
Tried to do Backdoor Roth IRA conversion for the past 2 days on Fidelity.com, but apparently, they won’t let you do it online anymore. Ugh. Have to call and have been on hold land.
That’s odd. What a pain. I wonder if it is just because of the holiday weekend? I do Mega Backdoor Roths at Fidelity each year and I do have to call for those conversions. Let me know how it turns out.
Do the income limits on the roth 401k apply when doing a backdoor?
I believe I understand that there is no income limit on a traditional ira, so i can deposit 6k and then immediately transfer to my roth per your instructions.
There are no income limits on Roth 401(k) contributions, only Roth IRA contributions. There is no income limit on traditional IRA contributions, but there is a limit where they may not be deductible if you have a plan at work.
I did my 2021 Roth conversation in Dec 2021.
Can we do the 2022 traditional ira contribution and back door Roth IRA conversation for 2022 now or do we have to wait until after April tax filing season?
You can do it now. I’m in process as we speak.
Thank you for quick response. I know the government was looking into closing the back door Roth IRA conversion in 2021 but that didn’t happen. My question is if we do conversion now and if they introduce this law later in 2022. Would it complicate the tax filing or do we have to reverse the conversion?
I am just starting this journey for my Roth backdoor. I messed the end of the year. I just opened my traditional and see I can still contribute for 2021. Am I able to fund and convert for 2021 and then next week do 2022? Also if possible are there any disadvantages to doing this so close together.
Thanks for the time
You can do them both today if you like. No disadvantage. Whether you do them both today or do one today and one next December the forms look the same.
My question is about the last step that indicates: “Leave my account open, I may fund in the future”
This this will be my first year doing it, I get the process. But what happens every year after that? Will I be creating a new traditional IRA account every year, converting it to Roth, and then leaving it open? So 5 years down the line, I will have 5 empty traditional IRAs and 5 Roth IRAs.
Just looking for guidance on how to handle after year one, particularly since I will be doing a 2021 contribution before April and then a 2022 contribution later in the year.
Thanks!
No, I use the same accounts every year at Vanguard and I think you can do the same at Fidelity. So just one traditional that has a $0 balance most of the year and one Roth that has all the money.