Something that hasn't been mentioned yet - if you have ANY other traditional IRA, SEP IRA, or SIMPLE IRA with pre-tax money in it, the backdoor Roth gets more complicated because of the pro-rata rule. In that case, your basis calculation isn't as straightforward. For example, if you have $50,000 in a pre-tax traditional IRA and you add $6,500 non-deductible, then convert $6,500 to Roth, you can't just convert your non-deductible contribution. The IRS sees all your IRAs as one big pot, so only about 11.5% of your conversion would be tax-free. This trips up a lot of people.

Does anyone know if TurboTax handles the backdoor Roth contribution/conversion correctly? I've heard horror stories about tax software messing this up and people getting unexpected tax bills.

This is a great question that trips up a lot of people! The key thing to remember is that mega backdoor Roth conversions are indeed treated as conversions, not contributions, so you're subject to the 5-year holding period for each conversion. One strategy I've seen work well is to layer your Roth funding approach: 1. Max out direct Roth IRA contributions first ($7,000 for 2025) - these can be withdrawn anytime 2. Then consider mega backdoor Roth for additional tax-free growth, knowing those funds will be locked up for 5 years Also worth noting: if you're doing multiple mega backdoor conversions throughout the year (say, quarterly rollovers), each conversion starts its own 5-year clock. So keep detailed records of conversion dates - you don't want to accidentally withdraw from a newer conversion thinking it was from an older one that's already past the 5-year mark. The complexity is definitely worth it for the long-term tax benefits, but plan accordingly if you need liquidity!

Just wanted to share my experience as someone who's been doing mega backdoor Roth for about 3 years now. The 5-year rule definitely applies to these conversions, and it can get complicated fast if you're not organized about it. One thing I learned the hard way: make sure your 401(k) plan actually allows what you think it does. My first employer's plan technically allowed after-tax contributions but had restrictions on when you could do in-service distributions. I ended up having to wait until I left the company to roll those funds to a Roth IRA, which wasn't ideal for my timeline. Also, don't forget about state tax implications! Some states treat Roth conversions differently than the federal government, so factor that into your planning. I use a simple Excel sheet to track all my conversion dates and amounts - it's been invaluable come tax time. The strategy is definitely worth it for the long-term tax-free growth, but as others have mentioned, prioritize your direct Roth IRA contributions first for maximum flexibility. Those $7,000 annual contributions (or $8,000 if you're 50+) can be your emergency access funds if needed.

Curious if anyone's considered the Qualified Small Business Stock (QSBS) exclusion with a C Corp structure? If you start a new C Corp for investing, hold the stock for 5+ years, and it qualifies under Section 1202, you could potentially exclude up to 100% of capital gains up to $10 million or 10x your basis. The tricky part is meeting the "active business" requirement since passive investments don't qualify. But if you're actively trading/investing as a business, it might work? Any tax pros here know if a trading business can qualify?

Harold, one thing that hasn't been mentioned yet is the potential for estimated tax payments throughout the year. With an LLC structure, since the profits flow through to your personal return, you'll need to make quarterly estimated payments on those gains - especially if they're pushing you into higher brackets. This can create cash flow challenges if your investment returns are lumpy or come late in the year. With a C Corp, the corporation handles its own estimated payments at the 21% rate, which might be easier to manage from a cash flow perspective. However, you'll need to be very careful about reasonable compensation rules if you're actively managing the investments - the IRS may require you to pay yourself a salary for services performed, which brings payroll taxes back into the picture. Also consider that if you ever want to change structures later, converting from C Corp to LLC is much more complicated (and potentially expensive from a tax standpoint) than going the other direction. Starting with an LLC and potentially electing S Corp status down the road gives you more flexibility as your situation evolves.

Random question but does anyone know if tax software like TurboTax handles all this correctly? Like do I need to manually separate out my qualified dividends when entering everything or does it do that automatically?

This is such a helpful thread! I'm in a similar situation as the original poster - first year with significant investment gains and totally confused about how everything gets taxed together. One thing I'm still not clear on though - if my total income puts me right at the threshold between tax brackets for qualified dividends (like right around that $46,800 mark someone mentioned), do ALL my qualified dividends get taxed at the higher rate, or just the portion that pushes me over the threshold? For example, if I have $45,000 in regular income and $5,000 in qualified dividends, does the entire $5,000 get taxed at 15%, or just the portion above $46,800 (so like $3,200 at 15% and $1,800 at 0%)? I know regular income tax brackets work as marginal rates where you only pay the higher rate on income above each threshold, but I can't figure out if qualified dividends work the same way or if it's all-or-nothing based on your total income level.

Anyone know if these carryover losses expire? I've been carrying some forward for a few years now and wondering if there's a time limit before I lose them.

I went through this exact same situation last year with my crypto losses from 2022. The confusion is totally understandable because it does feel like you're claiming the same deduction twice. Here's what I learned after consulting with a tax professional: You should enter the same capital loss carryover amounts on both your federal and state returns. This isn't double-dipping because you're filing two separate tax returns to two different taxing authorities (federal government and state government). California (which I saw you mentioned in the comments) does conform to federal capital loss treatment, so your carryover amounts should be the same on both returns. The key thing to remember is that your federal return calculates your federal tax liability, and your state return calculates your state tax liability - they're independent calculations that both happen to use the same underlying capital loss carryover. TurboTax should handle this correctly once you input the information. The software knows the state-specific rules and will apply them appropriately. Better to use the legitimate deduction you're entitled to than leave money on the table!