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?
sugar_in_your_tea @sh.itjust.works - 2.1yr
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 in personalfinance
Backdoor rIRA limits
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?
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.
Gotcha, thanks so much for the clarification!