hey everyone shut up about SDs memes real quick i have a serious question:
The last couple years Mrs BAC said we should put money into IRAs and then immediately roll them over into Roth IRAs. Is that stupid or a good idea? We just used vanguard. As we were working on our taxes the other day we were realizing we have to pay out the ass for those things
Three points here:
(1) Roth IRAs are awesome. If you got cash to invest in anything (other than maybe a pre-tax HSA), do this first.
(2) You’re talking about a back door Roth, which is the best you can do if you make too much to either contribute to a Roth directly or make tax deductible contributions to a traditional IRA. I’m assuming you’re talking about making post-tax (and non-tax deductible) contributions to an IRA both because
and because otherwise there’s no reason to go the back door route
(3) DO IT. But be careful how you report the transaction on stuff like turbo tax if you do your own taxes. You should only be taxed on the GAINS in investment between when you contributed to the IRA and converted to Roth. Stuff like TurboTax might assume your original IRA contributions were pre-tax and will think the ENTIRE amount of the conversion should be taxed. (The reason is because places like vanguard don’t opine as to what part of the conversion is taxable when they submit the form for taxes, so it’s on you to make clear the nature of the conversion)