submitted 1 year ago by root@lemmy.world to c/personalfinance@lemmy.ml

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Ok, so I've been contributing to a backdoor for almost a year, and since I don't have the liquidity to just find it outright at the beginning of the year, I put some in each paycheck. Sometimes while it's sitting in my settlement fund, it will gain like $0.10-$0.30 before I get a chance to move it to my rIRA.

I know after a certain point, you can be taxed on those earnings, but at what point is that? If I have a total of like $5 in earnings in my tIRA the whole year, does that jeopardize my rIRA, or would I just owe on that $5?

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[-] sugar_in_your_tea@sh.itjust.works 3 points 1 year ago

You'd just owe on that $5.

All that's happening with a "backdoor Roth IRA" is that you're converting from one tax status to another, and you owe taxes on any untaxed money. If you took a deduction on your IRA contribution, that money would be untaxed going in, and thus taxed when you convert. Since you're doing a "backdoor" IRA, I assume you're not taking the deduction, so the only taxes due would be on any gains.

It doesn't matter if you waited a year or more, all that matters is what taxable bucket the dollars are in when the transfer is made.

[-] root@lemmy.world 2 points 1 year ago

Gotcha, thanks so much for the clarification!

this post was submitted on 19 Nov 2023

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