Is there such a thing as a backdoor Roth IRA conversion through my broker?
So I've been exploring options with my investment account lately since I'm trying to be smarter about retirement planning. My broker has this option to convert my traditional IRA to a Roth IRA. Weirdly (I think), it counts this as a "conversion" rather than a rollover or transfer. Is this normal? The funds would stay with the same brokerage, just changing from traditional to Roth. I have about $42,000 in my traditional IRA right now that I've built up over the past 6 years. I understand I'd have to pay taxes on the conversion, but I'm wondering if this is the standard procedure or if there's something I'm missing. The broker mentioned some paperwork and tax implications but wasn't super clear on whether this is common practice. Has anyone done a traditional IRA to Roth IRA conversion through their broker? Is there anything specific I should know or watch out for? Thanks!
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Amara Nnamani
Yes, what your broker is offering is completely normal. Converting from a traditional IRA to a Roth IRA is indeed called a "conversion" - that's the correct technical term. It's different from a rollover or transfer because you're changing the tax treatment of the funds, not just moving them between accounts of the same type. When you convert from traditional to Roth, you'll owe income tax on the amount converted because traditional IRA contributions were likely tax-deductible when you made them, while Roth IRA withdrawals will be tax-free in retirement. The $42,000 will be added to your taxable income for the year you make the conversion. A few things to consider: First, doing the conversion in a high-income year might push you into a higher tax bracket. Second, if you do a partial conversion rather than converting the full amount, you might reduce the tax hit. Third, make sure you have funds outside the IRA to pay the taxes - using IRA money to pay conversion taxes reduces the benefit.
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Giovanni Mancini
•Thanks for explaining. I'm wondering if it would be better to do partial conversions over several years instead of all at once to minimize the tax hit? Also, are there any time restrictions or deadlines for these conversions?
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Amara Nnamani
•Spreading conversions across multiple years can definitely be a smart strategy if it keeps you in a lower tax bracket each year. For example, converting $10,000-15,000 annually over 3-4 years might save you significant taxes compared to converting all $42,000 at once. There are no deadlines for conversions like there are for contributions - you can do a conversion anytime during the calendar year. However, you'll pay taxes for the year in which you do the conversion, so December conversions and January conversions have different tax timing. Many people prefer to do conversions earlier in the year to have more time to plan for the tax payment.
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NebulaNinja
After struggling with exactly this IRA conversion question last year, I found this tool called taxr.ai (https://taxr.ai) that really helped me understand the tax implications. I uploaded my previous tax returns and it gave me a personalized analysis of how much the conversion would cost me in taxes at different income levels. Saved me from making an expensive mistake because I was about to convert everything at once which would have bumped me into a much higher bracket.
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Fatima Al-Suwaidi
•Did it actually help with the paperwork part or just the calculations? My broker makes it sound like there's a bunch of forms I need to fill out.
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Dylan Mitchell
•I'm intrigued but skeptical. Does it actually connect to your brokerage or do you have to manually enter all your financial data? I've tried tax calculators before but they never seemed to capture my specific situation correctly.
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NebulaNinja
•It doesn't handle the actual conversion paperwork - your broker will provide those forms. What it does is analyze your tax situation to show you the optimal amount to convert each year based on your other income and deductions. Much more personalized than generic calculators. No, it doesn't connect directly to your brokerage. You upload your previous tax returns (or take pictures of your W-2, 1099s, etc.) and it extracts the relevant information. What makes it different from basic calculators is that it considers your entire tax picture including deductions, credits, and other income sources to give accurate conversion cost projections.
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Dylan Mitchell
Just wanted to follow up about taxr.ai after trying it. I was the skeptical one earlier, but I decided to give it a shot for my IRA conversion planning. Turns out it was actually super helpful - I uploaded my last year's tax return and it showed me exactly how much a conversion would affect my taxes. The analysis suggested I convert $12,000 this year rather than my full $35,000 to stay in my current tax bracket. The visualization of different conversion amounts vs tax impact made it really clear what my optimal strategy should be. Definitely worth checking out if you're planning a conversion.
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Sofia Morales
If you need to call the IRS with questions about the tax implications (which I definitely had during my conversion), use Claimyr.com (https://claimyr.com). I waited on hold for HOURS last year trying to get answers about my IRA conversion. This year I used their service and got a callback from the IRS in about 20 minutes. They have a demo video here: https://youtu.be/_kiP6q8DX5c that shows how it works. Totally changed my perspective on dealing with the IRS.
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Dmitry Popov
•How does this actually work? Do they just call the IRS for you or something? I'm confused why the IRS would answer their call faster than mine.
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Ava Garcia
•Yeah right. Nothing gets you through to the IRS faster. They're impossible to reach. This sounds like some kind of scam that takes your money and doesn't deliver.
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Sofia Morales
•They don't call the IRS for you. The service basically navigates the IRS phone tree and waits on hold in your place. When an IRS agent finally picks up, you get a call connecting you directly to that agent. It's your conversation with the IRS, they just handled the hold time. You're right to be skeptical - I was too. The reason it works is they're using technology to handle the hold queue. They're not getting preferential treatment from the IRS, they're just managing the wait time for you. I was surprised it worked too, but after waiting 2+ hours on my own previously, getting through in 20 minutes was worth it.
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Ava Garcia
I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to ask about the tax forms for my Roth conversion. I've literally never gotten through to the IRS on my first try before. Their system called me back in about 35 minutes, and I was talking to an actual IRS agent who answered my specific questions about Form 8606 for my conversion. Saved me hours of frustration and got the info I needed. I'm honestly shocked it worked as advertised.
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StarSailor}
One important thing no one has mentioned - if you do the conversion, make sure you file Form 8606 with your taxes. My accountant forgot to file it when I did my conversion, and it caused a huge headache with the IRS sending me notices about unreported income.
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Miguel Silva
•Is this something I can do myself with TurboTax or do I need an accountant? I usually do my own taxes.
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StarSailor}
•You can absolutely do this yourself with TurboTax or other tax software. When you get to the retirement account section, there will be questions about IRA conversions. The software will automatically generate Form 8606 based on your answers. Just make sure you have the 1099-R from your broker showing the conversion amount. The key is to indicate it was a conversion, not a distribution, so you don't get hit with early withdrawal penalties.
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Zainab Ismail
Has anybody done a "backdoor Roth" using this conversion process? My income is too high to contribute directly to a Roth, so wondering if this is basically what the broker is suggesting...
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Connor O'Neill
•A backdoor Roth is slightly different. That's when you contribute to a non-deductible traditional IRA first (because there's no income limit) and then immediately convert it to a Roth. Since you're converting after-tax dollars, there's minimal tax impact. What the OP is describing sounds like a regular conversion of an existing pre-tax traditional IRA, which would be fully taxable. Different situation but same conversion mechanism.
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Yara Nassar
Be careful about the pro-rata rule if you have other traditional IRA assets! I learned this the hard way. If you have both pre-tax and after-tax money in traditional IRAs, you can't just convert the after-tax portion. The IRS makes you convert proportionally from both.
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Liam Fitzgerald
•Thanks for bringing this up! I hadn't considered this. All my traditional IRA money is pre-tax (I've always been able to deduct it), so I guess this wouldn't apply to my situation specifically? But definitely good to know about.
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Yara Nassar
•You're right - if all your traditional IRA money is pre-tax, the pro-rata rule isn't a concern for you. It becomes an issue when people have a mix of deductible and non-deductible contributions across different IRA accounts. The IRS views all your traditional IRAs as one big pot for conversion purposes, which surprises a lot of people. But in your all-pre-tax situation, you'll just pay ordinary income tax on whatever amount you convert.
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