Backdoor Roth - IRA account questions

#1

Hi!

I am aware of the pro rata rule for IRAs with respect to performing a backdoor Roth.

I do have assets in a traditional IRA that I cannot roll over into my 403b at work.

On Vanguard’s webpage regarding backdoor Roths: Backdoor Roth IRA: What it is and how to set it up | Vanguard

" 1. Contribute money to an IRA, and then roll over the money to a Roth IRA. For this strategy to work, you should contribute to a traditional IRA with no balance."

Does the IRS consider ALL money in ANY IRA to be in “one bucket”? My traditional IRA is not with Vanguard. Can I open a Vanguard IRA account and contribute to a traditional IRA then convert it to Roth? Or the money in my traditional IRA will still mess this up?

Thanks!

#2

Hi @penguiNET!

Yep, the IRS does indeed look across all traditional IRA accounts, regardless of where they are held (e.g., Vanguard, Fidelity, Schwab).

PFC has a great blog all about backdoor Roth IRA’s. Here it is if you want to check it out!

Keep us posted with any other questions!

#3

Many thanks for confirming my suspicions. I’m really regretting having a traditional IRA now haha.

I have another question, if you would, please:

I think I’m in a good spot, checked off this list. I am not eligible for Roth IRA. I could have sworn traditional IRA also had income limits, but when I Googled it, apparently it does not.

From taking the PFC course, if I understand correctly, a traditional IRA is taxed both on the way in because it’s post-tax dollars…AND taxed on the way out.

Roth vs Traditional… How do the taxes work? – Personal Finance Club is what I referred to.

My question is, is there any benefit to contributing to a traditional IRA then? How is an account taxed on both ends any different than the taxable brokerage account I’m contributing to all the time? Or am I misunderstanding the tax benefit of a traditional IRA with respect to post tax dollars. I contribute 6k post tax dollars, but on next year’s tax filing, my tax burden reduces by 6k? This is where it gets muddy for me!

Thank you for your time, I appreciate your advice and clarifications of misunderstandings!

Tim