What is a Backdoor Roth IRA 2023?
Check this post out for what is a Roth IRA. Essentially, a backdoor Roth IRA is if your income exceeds the limit for contributing to a typical Roth IRA.
This post is about how to do a Backdoor Roth IRA 2023.
Let’s dive into how to do a Backdoor Roth IRA 2023:
1. Check Your Eligibility Requirements
There are a number of requirements that limit your ability to contribute to a Roth IRA.
2. Open a Traditional IRA Account
Similar to a 401k, a Traditional IRA is simply a vehicle where you’ll be putting funds into. If you don’t already have one, you’ll need to open a Traditional IRA Account as part of the process. This can be done through a brokerage or financial institution (Fidelity, Vanguard, Charles Schwab, etc). To make things easier, you can open a Traditional IRA at the same institution you opened your Roth IRA.
3. Contribute to the Traditional IRA
Put funds into it! Contribute up to the limit for a Roth IRA for the specific year you’re contributing for. This amount changes from year to year.
4. Convert the Traditional IRA to Roth IRA
Once the funds are in the Traditional IRA account, this is where you’ll transfer the funds from the Traditional IRA account over to the Roth IRA account.
5. Pay Taxes and Report Conversion
Now, funds for a Roth IRA must be post-tax. So if the funds you used to contribute to the Traditional IRA in step 3 were pre-tax, you’ll have to pay taxes on the amount. However, if the funds you used to fund the Traditional IRA account were already taxed, you won’t need to worry about this part.
Additionally, you’ll need to report the conversion when filing your taxes.
To reiterate, the following are steps on how to do a Backdoor Roth IRA 2023:
- Check your eligibility requirements
- Open a Traditional IRA Account
- Contribute to the Traditional IRA
- Convert the Traditional IRA to Roth IRA
- Pay Taxes and Report Conversion
There you have it! Interested in learning more Roth IRA? Check this post out for the best Vanguard index funds for Roth IRA.
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