Have you considered converting the $40K to a Roth IRA instead to get a good jump start on the Roth's growth? If you can afford the Roth conversion taxes (using money in taxable or current year income to pay the taxes), you could even split the conversion over two years. And you would be able to still do the Backdoor Roth both years. Although the pro rata rule will make you pay more in taxes this year, that is balanced against less taxes next year. (The total tax will be the same as if doing a $40k Roth conversion and nothing else.)Yes, you are correct - I do not want to convert any of the $40k pre tax tIRA funds, I want to roll them into t401k, so that in future I can start the backdoor roth process on new contributions every year - hopefully starting this year itself (thanks for confirming that !).
To see what it would look like on your taxes, print out two copies of Form 8606 (a double sided Form) for 2024 and 2025. (You'll have to print out the 2023 version and increment the year by 1 throughout the form and by 2 on the other.) Fill out the first two sections by hand. This will also be a good example of how the Backdoor Roth would work. Your case is like the second example (Ben) but you can do better than make the mistake this fictitious investor made.
Even if you decide not to convert the $40K, filling out the form for 2 different years will help you see how things work.
Statistics: Posted by celia — Mon Oct 28, 2024 12:35 am — Replies 18 — Views 1154