As a CPA with 10+ years of tax experience, all I can say is that this is the most informative and easy-to-follow tutorial that I've ever seen. You did a great job using the correct terminology, which I appreciate from a tax perspective. You just received a new subscriber.

Finally a perfect, well explained video on backdoor Roth IRA!

Warning! There is a big potential problem that was (alarmingly) not mentioned in this video: If you already have other IRA balances (perhaps from a rolled-over 401(k), etc), then the back-door Roth conversion will not be a tax-free event! The reason is that when doing a conversion, a formula exists that figures what the converted balance is as a percentage of all "conversion-eligible" IRAs (this included SEP-IRAs) . So for instance if you are converting a $7k IRA balance, but have a $100k traditional or SEP-IRA, then you may only avoid taxation on 6.54% of the converted amount ($7k divided into $107k). Please speak with an actual practicing, experienced CPA before attempting your conversion.

This is great, very helpful, thank you. 5:18 Step-2, non-deductible IRA contribution. 6:27 Step-4, convert to Roth-Ira.

Thanks! Just did a backdoor Roth for my wife and I. I used this video last year and this year too. See you next year!

Do you need to make new accounts every year or can you use the same accounts for the 2023 contribution as well?

Thanks for this video. Can you please expand this video to discuss the pro rata rule?

This video is so helpful. Thank you, and great work!

Can you do a video converting the money in a regular 401k to a Roth IRA. Really enjoying the videos, you do great at breaking it down for the layman.

Wow great information that I can understand now Tae. Thank you. I have seen so many video's and it was not making complete sense.

Thanks so much. This was super helpful. Your channel is awesome.

Thank you this is the best video I have seen on this topic

Thank you this helped me so much!!! Great info

I have viewed countless videos about the backdoor Roth IRA but no one explained it to me in a more simplified and easier way. Thanks so much. Just a question - can I do this backdoor contribution each year when I am ready to put a lump sum amount in Roth IRA?

Gr8 Video Tae. Always appreciate your continued guidance on everything from a financial planning standpoint. I'd love to hear your thoughts on doing the exact same thing what you have mentioned here in the video with Robinhood instead of Vanguard. Robinhood is offering 3% match for this right now until end of Apr and that is appearing as immediate 3% bonus for a lot of people. but there could be some trade offs (fee wise, investment choices wise etc.). So we'd love to hear you make a video on the whole new robinhood IRA scheme and if that makes sense to you and would you recommend that to your viewers.

@ 8:02 Common Mistakes & Caveats: No mention of *pro rata* tax for those with existing traditional IRA from previous years.

So many videos misrepresent the benefits of the Roth. It has no effect on taxes, given your tax rate doesn't change. Let's say you have $4K and you're considering what to do with it. Tax rate is 25%. If you put it into a Roth, you first pay $1K in taxes, and then invest the remaining $3K. At 10% growth for 20 years, you end up with $20,182. If you instead decide to do a Traditional IRA, you put all of the $4K in. At 10% for 20 years, you end up with $26,910, and then pay 25% taxes, ending up with $20,182. Yes, you're paying more in a dollar amount, in 20 years, for taxes, but you end up with the same amount. The potential for benefit is if your tax rate is going to rise in retirement. Then you'd want to prioritize the Roth. If you expect it to fall, then you'd want to prioritize the traditional. There is another benefit to the Roth of not having any Required Minimum Distributions (RMDs) as well.

I want to make sure I understand this correctly. I have been contributing to my ROTH IRA ( In Vanguard ) for the last 7 years. In 2023 i have surpassed the income limit as an individual to contribute to my existing ROTH IRA. I can just open a traditional IRA ( In Vanguard ), deposit the 2023 allowable maximum for a ROTH IRA, wait for the money to clear and do a conversion into my EXISTING ROTH IRA? If this is true, I can do this every year going forward???

Good video but one question - if I already have a Trad IRA established with funds, and assuming it only has deductible contributions in it, when I go to convert the new contribution I just made for 2023, how will Vanguard know to only convert those dollars? Its easy if the TIRA is brand new and empty because every moves over to the Roth, but if its already got money in it is the question.

Hey Tae, this was great help. Thanks!

Excellent presentation. Excellent instruction.

Super easy to follow, thank you!

great video!

Thanks man! Needed that one

Thank you for your helpful content. One question. If you follow your process, but convert to an existing Roth IRA account (instead of opening a new one like you show in Step 3), does that create any problems with the backdoor process?

Hi Tae. Great video. I'm afraid I went too far with setting-up my first IRA with Merrill Lynch. I'm thinking Vanguard is less costly. My former employer had ML administer my 401K; which is much more than $ 7000!. But I've been out of Walmart a full year now and I wish to plant my entire 401K into my first ROTH IRA in Vanguard. But ML said I could stay with them to perform the same function. Any thoughts? Thank you Tae!

I just rolled over my 403B roth to my roth IRA. Can I still do backdoor Roth IRA? Does rollover affects my ability to do backdoor? Thank you

Thank you for this detailed tutorial. I just finished the conversion process and chose 'no tax notice to be sent'. But now I am wondering if the traditional IRA gains interest during the process of conversion, how do I deal with the accumulated interest? Do I have to then convert those few dollars separately again and choose 'Tax to be withheld" as it is now taxable??? Need advice or a step by step video about any left overs after converting the non deductible tax dollars into ROTH please .(VANGARD)

Is there any time restrictions on the backdoor Roth conversion? Could I create the traditional IRA account, trickle in contributions to that IRA throughout the year, and then at the end of the year, convert to a Backdoor Roth? Or would that also create complexity with taxes the following year?

I am married and we already have a Roth IRA established with Vanguard. If I end up getting raises overtime with work and end up making over that amount, am I no longer allowed to contribute monthly and just have to sit with whatever the account balance is? In addition to the small Roth IRA account with Vanguard I also have a typical 401(k)/Roth 401(k) with my employer. Your help in this is greatly appreciated.

I hope I'm not too late on this comment. Great video. Quick question. After your initial contribution to the Roth, are you allowed to make contributions every year thereafter or is that Roth done and the only growth comes from your invested money?

You should mention the pro-rata rule, since it'll affect anyone who for whatever reason already had money in a traditional IRA

Can do the back door every year?

Great content 😁

Great video! What is the pro-rata rule? if i have a simple ira account with my employer, can i still do this backdoor ira on a separate vangaurd account?

Hello and Thank you very much for the very informative presentation. I am now subscribed to your channel and I hope to learn even more. I was wondering whether I could re-characterize a quantity that I’d previously ré-characterize? I mistakenly did the first in an attempt to convert a Traditional IRA into a Roth IRA. The custodian is telling me I cannot do so but however I’m not seeing any IRS guidance saying that. I see guidelines stating that reversing a conversion is prohibited but nothing stating a re-characterization isn’t reversible. I’m attempting to do this before the tax window closes. Any help greatly appreciated!

9: 36 Tax form 8606 - non deductible IRA.

Thanks for the detailed explanation Tae! Would it be possible to buy Individual stocks within the backdoor Roth IRA account?

The IRS is ridiculous for making $214,000 the income treshold for married couples. How is a single filer allowed to make $144,000 but if they're married they cannot?!?!? Anyway, great video! You can also call Vanguard and one of their representatives can guide you through these steps.

Silly question (one of many): Do I have to do this every single time I want to put money in a backdoor roth? Meaning, I do the steps in this video and fund my backdoor roth. Am I then allowed to contribute to the Roth directly? Or, do I literally have to open a new IRA and backdoor-convert to a (new) Roth each time I want to put $X into a Roth? Also, I have a Roth that opened long before I surpassed the max income limits that I no longer contribute to - should I leave it alone? Is it causing me tax issues that I'm unaware of? This channel is absolutely fantastic - the content is presented perfectly and easy to follow and enjoy.

wow crazy how much the website has changed. cant do a lot of this

Thanks for this, very helpful! Question: To repeat the contribution each year, would I follow these same steps? i.e., fund the lump sum to the IRA account and immediately transfer (once settled) to the Roth, although it already has a balance?

What if I have money in a Vanguard rollover IRA? If I plunk in $6500 into that rollover IRA, and then convert the whole thing (including the money already there), won't it end up mixing up pretax funds with this posttax $6500 and cause me a tax headache?

Didn’t know I had to invest my rollover ira(s) for a little over 18 months until. 🙂‍↔️🙂‍↔️🙂‍↔️

Thanks for this great video! I just started a new job with a salary that will push me over the income limit for the year 2023. While I expect to earn my full salary next year, in the event of the unexpected, I don't want to miss out on investing in my Roth. At what point do I have to stop contributing directly to my Roth IRA? In the first year that one's salary exceeds to the limit, is there an ideal time to open a traditional IRA in preparation for the conversion? Thank you so much!

So what if you want to invest more? Say $200 a week or wait and now you have $10,400 yearly just sitting around? The $6,000 cap kinda sucks.

Tae, I'm interested in setting up a backdoor Roth IRA. The steps have changed a bit on the Vanguard website. I'm assuming the first account I need to open is the TRADITIONAL IRA? Or should I pick ROTH IRA?

I already have a 401K vanguard account that has about $16k in it. It's been just sitting there for years because I don't work for that employer anymore. Can I roll over $6500 at a time to a traditional IRA then to a roth IRA? If so, when do I pay the taxes on them?

Is there a way to automate $500/month from my bank to traditional ira? do i then have to wait to convert it to my roth as a lump sum and then invest into an index fund?

I have a small business and have a SIMPLE IRA for myself and my employees. Am I ok at setting up maxing out a backdoor Roth?

Hi, good morning. I already contributed to my IRA ROTH the very first month of the yr for 2024. My MAGI for 2023 was $187,000. I have some nice gain in my brokerage account. I am tempting to take some profit. But I am worried because that may increase my MAGI above $230,000 because that will put me not eligible for IRA contribution. Do I have to take my contribution from IRA and also pay the IRS penalty? What are my options? I badly want to take some profit from my investment. should have held onto the IRA contribution till the end of the yr. stressed.

I just opened a roth IRA and contributed $3000 to the money market account but did not buy any investments yet. I expect my MAGI to be over $150000 this coming year. Should i convert the $3000 back into my bank account, open a traditional IRA, and then convert it to my current ROTH IRA now?

Do you HAVE to open a new Roth IRA for this to work? I already have one but may need to start the “back door” method as I may be over the income limit in 2023. Can I just create a new traditional IRA account and convert it to my current ROTH IRA for 2023? My current ROTH IRA is already funded for 2022 and earnings should be below the married limit for 2022.

If you are a citizen of usa and decide to live in some other country, can you still invest in Roth IRA from there? Is there any legal problem in doing so?

I noticed you said to invest in longterm index funds which is the same that you recommend to do in brokerage accounts. But what are your thoughts on using dividend funds or high yield bonds to benefit from the compounding?

I have both a traditional IRA and a Roth IRA with money already invested can in both do i need to sell my ETFS before i can roll it over? Pls let me know. Thanks in advance

Great video! What would one do if they have already contributed to their Roth IRA but in the middle of the year their income increased? Do we still apply the same steps?

Has anything changed for 2023? Do these general steps work for other brokerages companies? Would rather not have to manage another login...

Ty for this video! After fully funding the Roth IRA using Backdoor method, would you recommend then funding the traditional Ira even though it would be non deductible? If so, how does that effect the following years Backdoor contribution?

Do you have any advise on tax advantages / dis-advantages of being married? I am engaged and we are trying to figure out if we want to just "metaphorically" tie the knot, or do it for real.

Can I convert 6500 to my Roth IRA with this method and then trickle in 6500 to my traditional IRA, then once the new year starts then convert that to the ROTH IRA? or should I just convert straight from my money market account?

Does converting from a tradional to a Roth CHANGE RMD.? I would have to assume yes?

Can we setup a monthly auto pay to Roth IRA? Why it is called “Backdoor” ? Can I open a front door account with limited amount? Why it has to be done through traditional IRA? Thanks

awesome bro

Hello! Any idea what the best route is whether to withdraw my 401k from my previous employer? Or rollover to a traditional IRA? Or rollover to a roth IRA? I want to take advantage of this backdoor perk. Thanks!

What vanguard fund do you recommend for a Roth?

So what do you do on any potential gains from the traditional IRA contribution? Say it's a few bucks. Do you convert the whole amount (including the few extra bucks)? If not, how do you handle that extra bit of money that was accrued.

Great informative video. Question - Once I convert from traditional to Roth - should I close out my Traditional IRA account? What would be the step afterward?

What if I already opened a Roth IRA with one small deposit and now I have a salary increase that puts me above the income ceiling? How does the backdoor work with an existing Roth IRA and contribution?

Thank you for the video! Didn’t know about the 8606. Question- what do you consider to be “trickling” in your contribution? I have my contribution in my roth automated so I don’t have to think about it. But you’re saying dropping in a greater lump sum less frequently is better? In what ways?

Could you do 2023 version? Vanguard have updated their website so slightly.

Hi, You said not to do trickle in your contributions. So does that mean I should be doing these steps every year with the full allotted amount allowed by IRS?

Same rules apply for 2023 ? As far as opening a back door wit no income limits ?

Thank you very much for this video! On 2:13 you mentioned that high income earners can’t open a Roth IRA account. Does it mean that backdoor strategy doesn’t work for those who are high income earners and don’t have Roth IRA account open?

Nice video! I have had a Roth IRA for years that I've contributed to when my income was below the $129,000 cap. For next year, I plan on opening a Traditional IRA and using the backdoor method. Would I need to open a new Roth IRA just to be the "backdoor" Roth? Or could I convert the money from my traditional IRA into the Roth IRA I already have?

I have a traditional ira which has money invested. I opened earlier in 2022 and the portfolio is down. Can I covert this to back door Roth IRA now as I exceed income for direct Roth?Do I need to sell positions? Do I need to keep the traditional ira at $0? Is it better to leave the positions as is and transfer new 6000 and immediately convert to Roth? Thanks!

is the eligibility requirement based on the "possible" magi for 2023 to contribute to a 2023 roth ira account? Or a previous tax year. TIA!

When we converting between Roth and traditional any open positions are sold off and the money is placed in the destination account as money market funds. If the market is below our cost basis on those positions when we convert we're taking a loss, and since it's not a taxable account, a loss that we cannot tax loss harvest. Am I correct in my understanding?

Great video, Tae! So grateful for you 🥲

If I understand this correctly, the ony reason to do a backdoor Roth is your income is over the joint or individual income limit (for AGI), which would have prevented you from doing a regular $6000 per person Roth IRA contribution, right? Otherwise why bother with the hassle of a traditional conversion IRA, and making a non deductable contribution.

Great simple explanation! If I may ask, for common mistake #2 "Trickle in the contribution" does this also apply to dollar cost averaging into a fund? So, let's assume I have my 6k in my account. Do I have to use up all the buying power at once, or can I average my buys over the year?

Is there a limit on how much you can convert? If there is no limit, can I do this to add on to my existing ROTH IRA that’s already at the $6000 limit with my income that’s lower than the limit for a front door IRA? (Sorry hope my question makes sense 😅)

Do you do this same conversion every year? I would assume so, right? I had imagined the conversion to be a 1 time thing but it sounds like you do it every time

Does vanguard allow self managed traditional IRA accounts? i have been asked to convert that to a broker managed account for some reason. Not sure why you are not getting that prompt when you opened your account in the demo.

Two questions: 1) I'm watching this in Feb 2023 and I've submitted my taxes for 2022. I'm assuming that I should do this just for 2023 and forget about trying to make a prior year contribution. Is that the right way to think about it? and 2) is this a process you'd do every year OR do you re-use the same accounts?

If my MAGI puts me into the "phase out" contributions for a ROTH, should I complete 100% of my contributions "$6000) into a Traditional and then complete the Backdoor method OR is there any advantage to make my phase out contribution to the ROTH and then make up the difference to get to $6000 using the backdoor method?

Question - every year, do I need to create a NEW Trad IRA account, then a NEW Roth IRA account, to tackle this backdoor Roth conversion? Or in 2023, and again in 2024, etc, am I just making the deposit into the existing Trad IRA account I opened the prior year and converting or merging with the existing Roth IRA account I already have? I assume that's the case but want to make sure. I don't think it'd make sense to have multiple Roth IRA accounts with Vanguard for each year this was done.

are you able to open your roth ira just holding an ITIN number? if so I guess you'll just need to put the number instead of the SSN?

Question i am collecting social security i dont have to file taxes does this qualify me to start a ira and a roth? I am confused. 73 and retirwd single too.

OK I have a question, I got excited about watching your video so I called my financial advisor and was told that this particular concept is only good for those that do not have existing IRA accounts… I already have an IRA account and they would want me to transition my existing IRA account to a Roth and subsequently tax me on the capital gains. Is this in fact true? I was hoping to open up a brand new IRA account deposit new 2023 monies and then converted over to a brand new Roth IRA account. My financial person said this is not possible…..

With vanguard, can you merge funds from the new normal IRA into an EXISTING Roth IRA?

Any thoughts on married filing separate? If you’ve seen it, the income limit for contributing is quite ridiculous, and I’ve been told the back door method does not work for this. Is this true?

Is this something you’d need to do every year to take full advantage?

Do you do this every year?

I make commission and may make too much for a traditional IRA one year and then the next I can make under the limit. Can I make this all go into the same IRA?

Since you open both account type, can you use the same traditional IRA account for next year the convert/transfer it to the same ROTH ira axxount?

If i put money into a traditional ira that I have deducted from my taxes, will I have to pay taxes ( when it's converted or when I take it out at retirement ) when I convert it into a Roth ira as if I never used a traditional ira?

Hello Tae Kim, Thank you for well explained backdoor Roth IRA stategy. Every year I maxout my 401K contribution in employer provided plan. Can I still make contribution to another Traditional IRA account and use backdoor stategy to fund my Roth IRA?

What tax documents should be expected?

If I max my 401k, can I still contribute to the backdoor Roth?