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

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[quote=Anonymous][quote=Anonymous]OP again. Ok I think I figured it out; thanks google. This isn't going to work for me because I have $600k in a traditional IRA.

Found this article:
https://www.fidelity.com/learning-center/personal-finance/backdoor-roth-ira#:~:text=Cons%3A,tax%20bracket%20for%20the%20year.

It says:
How do you calculate your taxable percentage with the pro-rata rule?
- (non-deductible amount) / (total of all non-Roth IRA balances) = non-taxable percentage.
- (amount to be converted to Roth IRA) x (non-taxable percentage) = amount of after-tax funds converted to Roth IRA

In other words, "you don't get to cherry pick and only choose to convert your nondeductible contributions...because the IRS uses the IRA aggresgation rule when calculating taxes owed on a conversion, which means it views all your traditional IRAs as a single tax entity."

So let's say I make a $7,000 nondeductible IRA contribution this year and I immediately convert it to a Roth. My pre-tax traditional IRA is worth $600k, so with the nondeductible contribution it's worth $607k. The $7k is 1.1% of the total balance, meaning that 98.9% of my conversion is going to be taxable. Or $6,923. So I'm not causing myself to have to pay income tax on an extra $6,923 just so I can do a back door Roth. Makes no sense.

I knew it had to be too good to be true. So all these posters crowing about back door Roths and always making it seem like you're dumb if you don't do it either a) have no other traditional IRAs, b) don't know the rules or c) paying a whole lot of unnecessary taxes.[/quote]

I did a backdoor Roth by converting my entire IRA into a Roth IRA.  It wasn't as large as yours, but I did have to pay taxes on the $200,000 that I converted.  That cleared the way for yearly backdoor Roths.  I used capital gains from sale of stock to fund the taxes.[/quote]

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