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Summary

Back Door Contribution

• Contribute to IRA Account (limited by IRA contribution limits for the year)
  • 2023 - 6500 for 50 and under
  • 2024 - 7000 for 50 and under
• IRA Contribution can be done up to April 15 to be considered for previous year's IRA Limits, i.e. contribution made on Jan 2023 can be for IRA 23 or IRA 24
• Do not invest the money in IRA account (to avoid tax complications)
• Move the money into ROTH IRA Account and then invest.
  • No conversion limits for converting to ROTH
  • ROTH contributions are reported in the calendar year, i.e. conversions made on Jan 2023 will be for Taxes 2023

Contributed to ROTH IRA Directly by mistake

• If contribution was done directly into ROTH IRA account, re-characterization must be done
• Re-characterization form was provided by Ameritrade - ROTH IRA - OneDrive (live.com)

Taxes reporting

• File 8606 Form to report back door ROTH

PRO RATA rule

• If your traditional IRA has both deductible (pre-tax) and non-deductible (after tax) money then during ROTH conversion you cannot choose where the conversion money comes from
• ROTH conversion will be taxed proportional to your pre- and post-tax percentages
• (non-deductible amount) / (total of all non-Roth IRA balances) = non-taxable percentage
• (amount to be converted to Roth IRA) x (non-taxable percentage) = amount of after-tax funds converted to Roth IRA
• In other words, 7% of the $100,000 is non-taxable since you already paid taxes on those $7,000. But if you want to convert $7,000 to a Roth IRA, in reality, the converted amount comes from 93% pre-tax funds and only 7% after-tax funds. You’ll have to pay taxes on 93%, or $6,510, of the converted amount. By the same token, that means $6,510 of the original non-deductible $7,000 is still in the Traditional IRA, and any future after-tax contributions to your non-Roth IRAs will further complicate your Pro-Rata percentage, making future withdrawals messier than you might assume.
• A Guide to the Pro-Rata Rule and Roth IRAs - SmartAsset | SmartAsset

Exceptions to Pro RATA rule

• QCDs (Qualified charitable distribution( and converstion to employer sponsored plans ( if it is allowed) will let you contribute through backdoor without pro rata complication

References

⚒️ 2022 backdoor ROTH
Mega Backdoor ROTH

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