Reply to How exactly do you make back door Roth contributions?

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[quote=Anonymous]First step is to set up an IRA. You can do this with any brokerage. I chose Vanguard. If you already have an IRA, use that. If you have multiple IRAs, you must consolidate them.

Your IRA will either be a Roth or a traditional. Anyone can set up a traditional IRA, but a Roth has income requirements. You qualify for a Roth if you make less than 153k (single) or less than 240k(married). The advantage of a Roth is that you pay taxes now, not in the future (when taxes will likely be higher). The “backdoor” process is a well-known legal loophole for people who make too much money to qualify for a Roth, enabling them to convert traditional IRA contributions to a Roth contribution.

Second step of the backdoor process is to contribute to your traditional IRA. When you contribute, leave the funds in cash or money market for now. There are IRS limits to how much you can put in each year: 7k per year if you are under 50, 8k if you are older than 50.

Third step is to use your IRA provider to transfer that traditional IRA contribution to a Roth IRA. The process depends on your provider. Since I chose Vanguard, here is the process for Vanguard: https://youtu.be/S75yfnDHN3M?feature=shared

As part of this third step, you will pay taxes on those contributions.

The fourth step is to invest your contributions in your Roth IRA after the funds have settled.

That’s how you do it. [/quote]

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