[USER]

We are dumb have have $72k sitting in traditional IRAs and have too high of an income to get tax benefits from. We each have 2 accounts that have $8k and $28k.

All 4 IRAs are with Fidelity and are invested.

We think the right thing to do is Backdoor Roth IRA, right? I’ve tried reading but want to clarify a couple of things.

Do we convert it all at once or is there a limit? Since we each have 2 traditional IRAs do we put those 2 IRAs into 1 Roth IRA or into 2?

Do we have to sell everything before rolling it over?

When can the funds be withdrawn without taxes or penalty? I believe Roth IRA contributions can be accessed any time but I don’t know if these count.

I don’t understand the pro-rata rule at all- is that something we have to consider here? We have other accounts if that matters but no other IRAs.

Any other considerations?

[Christopher]

The only limit is your ability to cover the tax liability. You can consolidate into a single Roth (there’s no point to having multiple Roths).

It’ll liquidate at transfer (that’s a sell).
You’ll have a 5-year cooldown before the conversion is available. Those dollars come out _after_ contributions, but before gains.

Pro rata can be a little tricky – before doing this, make sure your filed form 8606 with your previous years’ taxes to report the non-deductible basis (how much you put into traditional IRAs without taking a deduction).

Without doing this, it will make the entire conversion taxable income, instead of just the gains.

If you’re converting it all, pro rata doesn’t really matter, the tax liability is simply the gains (total account value minus contributions as reported on 8606).

If this is an onerous tax hit, you can split it across multiple tax years.

[Ron]

The backdoor roth strategy/process covers only your yearly contribution, not funds you have sitting in your tIRA from prior year activity.

A conversion of what you have sitting in your tIRA is a simple process, is unlimited and can be done without selling, but it is taxable in the full amount you convert.

It may or may not be beneficial to you depending on your situation and long term plans.

[Author]

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