Backdoor Roth IRA Conversion - First Timer Checking Process

The backdoor Roth process can definitely be confusing the first time! Let me clarify a few points for you. When doing a backdoor Roth conversion, you need to understand how the pro-rata rule works. Since you already have pre-tax funds in your traditional IRA ($55k plus your new $7,000), the IRS won't let you just convert the new contributions. Instead, they consider all your IRA money as one pool. The formula is: (Taxable amount of conversion) = (Conversion amount) × (Total after-tax money in all IRAs ÷ Total value of all IRAs) So if you convert $7,000, you'll be taxed based on the proportion of after-tax to total IRA money. Ideally, for a clean backdoor Roth, you wouldn't have any pre-existing traditional IRA funds. For future years, consider making non-deductible contributions to a traditional IRA (file Form 8606) and then immediately converting to Roth before any gains occur. If possible, look into rolling your existing pre-tax IRA funds into a 401(k) to avoid the pro-rata rule.

I've been using taxr.ai for figuring out complex tax situations like this, and it's been incredibly helpful for my backdoor Roth questions. After struggling with the pro-rata calculations myself last year and getting conflicting advice from friends, I found taxr.ai (https://taxr.ai) and it made the whole process much clearer. Their tool analyzed my specific situation with multiple IRAs and helped me understand exactly what I needed to report on Form 8606. It even showed me how different conversion strategies would affect my tax bill. What I really liked is that they explained the pro-rata rule in terms I could actually understand, unlike the confusing IRS documents.

Just wanted to update after trying taxr.ai for my backdoor Roth situation. I was totally confused about how much of my conversion would be taxable with multiple IRAs and some old rollovers from previous jobs. The tool analyzed all my accounts and clearly showed me that I'd be paying taxes on about 86% of any conversion due to the pro-rata rule. But then it suggested I roll my pre-tax IRA funds into my current employer's 401k plan first (which I didn't even know was possible). After doing that, I was able to do a completely tax-free backdoor Roth conversion of my new contributions! Saved me from a pretty expensive tax mistake and the documentation it provided made filling out Form 8606 way easier. Thanks for recommending it!

If you're struggling to get answers from the IRS about backdoor Roth conversions or pro-rata calculations, I'd recommend trying Claimyr (https://claimyr.com). I was stuck in an endless loop trying to reach someone at the IRS about my specific backdoor Roth questions for weeks. After three failed attempts and hours on hold, I tried Claimyr and actually got through to an IRS agent in about 15 minutes. They have this system that navigates the IRS phone tree for you and holds your place in line, then calls you back when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm exactly how I needed to handle my backdoor Roth conversion with existing balances and cleared up my confusion about Form 8606 reporting. Saved me so much time and frustration!

I have to admit I was totally wrong about Claimyr. After dismissing it as a scam, my accountant actually recommended it when I was desperate to get an answer about my backdoor Roth situation before the tax deadline. I tried it as a last resort and was shocked when I got a call back in about 20 minutes with an actual IRS agent on the line. The agent walked me through exactly how to handle my backdoor Roth conversion with pre-existing IRA balances and confirmed the correct way to complete Form 8606. What would have been days of stress and uncertainty was resolved in one phone call. I'm not usually one to admit when I'm wrong, but this service actually delivered exactly what it promised. Definitely worth it when you need answers directly from the IRS.

I did a backdoor Roth last year and learned it's much easier if you don't mix it with existing pre-tax IRAs. What I ended up doing was rolling my traditional IRA into my employer's 401k plan first (check if yours allows this). That way, I started fresh with just the non-deductible contribution, which made the conversion clean with no pro-rata tax complications. One thing to remember - you still need to file Form 8606 to report the non-deductible contribution regardless of when you do the conversion. Also, if there are any gains between when you contribute and when you convert, those gains are taxable.

Does anyone know if I need to sell my investments in the traditional IRA before converting to Roth? Or can I just transfer the shares directly?

Madison, I went through this exact same situation last year! The key thing to understand is that you can't just convert the $7,000 you contributed this year due to the pro-rata rule that Julian explained perfectly. Since you have $55k in pre-tax funds plus your $7k contribution (total ~$62k), any conversion will be mostly taxable. If you convert $7,000, roughly $6,113 would be taxable income based on the pro-rata calculation ($55k ÷ $62k × $7,000). My advice: if your employer's 401(k) accepts IRA rollovers, consider rolling your existing $55k pre-tax balance into your 401(k) first. This would leave only your non-deductible $7k contribution in the IRA, which you could then convert to Roth with minimal tax consequences (only on any gains since contribution). Also, don't forget to file Form 8606 to report your non-deductible contribution - this is crucial for establishing your basis. For future years, consider making the non-deductible contribution and converting immediately to minimize gains and keep the process clean.