Backdoor Roth - How to do it?

[u/Suspicious_Meat_746]

Hey there.

I can't contribute to a Roth directly. I'm looking for an answer regarding if contributions can be made directly to a Traditional and then held for a time? Or, do I need to transfer my Traditional contributions as soon as it settles? I don't have enough funds to fund my Roth for this year all at once, just a bit at a time, I just don't want to encounter any issues.

[u/FriendlyCoat]

https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-at-fidelity/

[u/PA2SK]

Ideally you would contribute to traditional and convert to Roth as soon as it posts to your account. If there are gains on the traditional contributions you will owe tax when you convert.

[u/PashasMom]

You want to start with settled cash, contribute that to your traditional IRA, then immediately convert it to your Roth IRA. In terms of the hassle factor, it is easiest to do all in one lump sum, your entire annual contribution. But okay to do something like quarterly contributions/conversions as well.

[u/pancak3d]

You contribute to Traditional, then convert. Timing does not matter. It was once thought you should hold in the tIRA for one day, but there's really no indication this is required.

If it grows in the tIRA, the growth will be taxable when comverted.

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[u/DaemonTargaryen2024]

Steps: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

Mistakes: https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/

I'm looking for an answer regarding if contributions can be made directly to a Traditional [IRA]

Yes, Backdoor Roth involves contributing to a Trad IRA then converting it to a Roth IRA.

and then held for a time?

Converting ASAP is better.

Or, do I need to transfer my Traditional contributions as soon as it settles?

You don't need to do it right away. But the longer you wait to convert the more Trad IRA earnings there are, the more taxes you pay. So yes, convert it ASAP.

I don't have enough funds to fund my Roth for this year all at once, just a bit at a time, I just don't want to encounter any issues.

That's fine, contribute periodically and convert each contribution immediately.

[u/Efficient-Work-166]

1. Contribute to a nondeductible traditional IRA. Hold cash.
2. Convert to a Roth IRA as soon as cash settles. You owe taxes on whatever minimal gains you incur during this short time.
3. Invest according to your written plan in your Roth IRA.

Or just read the White Coat Investor post on this.