New to IRA - Questions about Traditional to Roth IRA Conversion Process

So with the pro-rata rule, if I already have a Traditional IRA with pre-tax contributions from years ago at another institution (about $15,000), does that mean I can't just convert my new non-deductible contribution without paying taxes on a portion of the conversion? Do I need to address all my IRA money at once?

Yes, that's exactly right regarding the pro-rata rule. When you do a conversion, the IRS looks at all your Traditional IRA assets across all institutions as one big pot. You can't cherry-pick just the non-deductible contributions for conversion. For your specific situation with $15,000 in pre-tax Traditional IRA money elsewhere, if you make a new $6,000 non-deductible contribution and try to convert just that amount, the IRS will consider it as converting a portion of your total IRA balance ($21,000). Roughly 71% ($15,000/$21,000) of any conversion would be taxable. This is why some people with existing pre-tax IRA balances look into "rolling in" those funds to an employer 401(k) if possible before executing backdoor Roth strategies.

Does this taxr.ai thing actually work with complicated situations? I have Traditional IRAs, a rollover IRA from an old 401k, and I'm trying to figure out if I should do backdoor Roth conversions or just wait until retirement. Would it help with that mess?

I'm skeptical about these tax tools. Does it actually give advice specific to your situation or just generic info you could Google? And how does it handle state-specific tax rules for IRA conversions? Some states treat Roth conversions differently.

It absolutely works with complicated situations like yours with multiple account types. The tool specifically helped me understand how my rollover IRA would affect my backdoor Roth strategy and gave me options based on my specific accounts and balances. Regarding state-specific rules, that's actually where I found it most helpful. I'm in California, and the tool flagged that my state handles certain aspects of conversions differently than federal rules. It's definitely not generic info - it analyzes your actual tax documents and provides specific recommendations based on your complete financial picture, not just generic advice.

How exactly does this work? Do they just call the company for you? Couldn't I just keep calling myself until I get someone knowledgeable?

This sounds like a scam. Why would I pay someone else to call Vanguard for me? And how would they get me to a "senior specialist" when I couldn't get there myself? Seems like they're just charging for something you could do yourself with enough persistence.

They don't just call for you - they use a system that navigates the phone trees and holding patterns to get you connected directly to customer service. When you're connected, you're the one who talks to the representative, not them. You're right that you could eventually get through yourself with enough persistence, but after spending literally hours on hold across multiple days, the time savings was absolutely worth it to me. As for getting to senior specialists, they have data on which options and times tend to connect to more experienced reps. In my case, I was connected to someone who immediately understood what I was trying to do with the backdoor Roth, whereas the previous reps I spoke with seemed confused by the concept.

Thanks for mentioning the Form 8606! Would I need to file that for the tax year when I make the contribution to the Traditional IRA, or for the tax year when I do the conversion to Roth? If I contribute now but don't convert until next year, which tax year would it fall under?

You need to file Form 8606 for the tax year in which you make the non-deductible contribution to your Traditional IRA. This establishes your "basis" (after-tax money) in the IRA. If you contribute now (2023 tax year) but don't convert until next year (2024), you would still report the non-deductible contribution on Form 8606 with your 2023 tax return. Then when you do the conversion in 2024, you'd receive a 1099-R for that tax year, and you'd file another Form 8606 with your 2024 return to report the conversion. This is why keeping good records is so important - you need to track your basis over time, especially if you don't convert immediately after contributing.

I use Fidelity for my backdoor Roth and it's super easy. You can open both account types online in about 10 minutes, and their conversion process is just a few clicks. Never had to call customer service once. They also have good educational resources about the process right on their website.