Backdoor Roth Mistakes Trigger Penalties Few Know How to Fix

submitted by /u/trips2you2 [link] [comments]

“An IRA inherited from someone who passed in 2020 or later must be liquidated by December 31 of the 10th year after death. I don’t think it needs to be 10% each year, but if you leave the balance until the last year, you could be looking at a very large tax bill. [re: Need advice. M58, married to F57. I know we need the help of a financial planner. My problem is trust and cost. I’d like to find a true fiduciary but don’t know how to find a great one.]”

“So the reputable brokerage firm gave you tax advice? [re: Missed my SEP IRA contribution by one day. What to do?]”

“Yes. [re: Turning 50 next year, multiple employers, 150k+ income. Can I use an employers post-tax option for my 'catch-up' and still do my usual backdoor Roth contribution? Thank you in advance]”

“Thank you in advance for your help. submitted by /u/RollX [link] [comments]”

“You can pull contributions out of a Roth at any age without penalty if your first contribution to the Roth was over 5 years ago. You only get penalized on investment income pulled out of a Roth before 59.5, not on the base investment amount. Look up 5 Year Roth clock, and know it is a once in a lifetime clock, not specific to a particular Roth account. [re: Laid off and looking for work. But can I retire now?]”

“I would avoid recommending Roth employer contributions. Many providers don't even support it, since it's new. You can never contribute as much compared to mega backdoor. It's treated as a pre-tax employer contribution plus a taxable Roth conversion reported on Form 1099-R, per item L-9 in Notice 2024-2 . This can adversely affect the QBI deduction. [re: Mega backdoor Roth 401k limit when you have a separate W2 day job]”

Ok Genius [re: BoA Merrill Edge traditional IRA to ROTH backdoor]

“5498 issued by the account will report to the IRS what tax year the contribution is for [re: Missed my SEP IRA contribution by one day. What to do?]”

“There was a small remainder left to contribute to my SEP IRA, but I forgot to do it yesterday, October 15th. The Small Business department at my brokerage said go ahead and make the contribution because they report to the IRS the year the contribution is made, not the tax year, so it will show up as 2026 anyway, and it is up to me on my taxes to tell the IRA that that amount is designated for 2025 tax year. Is this right? I already filed my taxes last week and paid state and federal in full. &#3”

“Constructing a tips ladder in Roth IRA wondering the best advise for choosing maturity range for a 60 year old retired with enough other investments to cover spending for next 15 or 20 years+ Does it make sense to start maturities soon in next 5 years or extend ? And how long to go. submitted by /u/dpwct [link] [comments]”

“Not understanding the withdrawal at combined. Assuming the person is qualified to withdraw from their 401k, wouldn't withdrawing an additional $1 from the 401k be adding to taxable income at the marginal bracket? If not, then that means it's possible to lower your effective tax rate by withdrawing from the 401k? [re: Can someone dumb it down maxing 401k over brokerage?]”

“We are a couple who retired early and have several years where taxable income is very low. Without ROTH conversions, we’d pay next to zero federal taxes in these years. During our working years, we were able to max both ROTH IRAs and tax deferred accounts. Our tax deferred balance is right around $1M, and we have 18 years for that to grow before RMDs kick in. For me, it’s a no brainer to convert at least up to the top of the 12% bracket. However, it seems that crossing into the 22% bracket might”

“You can withdraw the contribution if you really really need to. [re: Started a Roth IRA this year, I feel like it's not doing too great?]”

“Assumptions: - you have only 1 T-IRA account just before the contribution of 7000 (this is a KEY assumption) - the T-IRA had $50 in it. The $50 represented a deductible contribution from a prior year. - You then make the $7000 new contribution as a "non-deductible" T-IRA deposit - You now have a T-IRA of $7050 of which $7000 is basis (money that is post-tax) and $50 that is taxable income (if distributed/converted). - You convert $7000 of the $7050 to a Roth contribution. You probably”

“I read so much on this topic and I just can’t wrap my brain around it. Hoping someone here can help explain. In 2025 I did a Roth conversion for $7,000. The regular IRA was funded with all post-tax money. I deposited $7k in the IRA account which had about $50 in it and immediately did the Roth conversion. My understanding is that in this case the $7k should not be taxable. But the IRA account 1099-R shows $7k distribution and $7k taxable amount. This increased my total federal taxes owed by $2,4”

“I want to double-check my maximum 2026 contribution limit for my Solo 401(k). I have a W-2 day job (unrelated employer) where I fully max out my employee elective deferrals ($24,500). They also give me a small percentage match as an employer match contribution. For my separate S-Corp contracting business, I take an $85,000 W-2 salary and want to contribute the maximum $72,000 via a 100% Mega Backdoor Roth strategy (voluntary after-tax contributions). Can you confirm that under IRC Section 415(c)”

“It sounds like OP is saying Merrill themselves are saying the account will close of they roll the money over, not that OP is wanting to close the account. [re: BoA Merrill Edge traditional IRA to ROTH backdoor]”

“Here's an old thread that indicates what you're doing can be done without closing the account: https://www.reddit.com/r/MerrillEdge/comments/1hwxs21/what_is_the_account_minimum_to_keep_an_ira_open/ Can't help specifically with Merrill, but I've done exactly this with Fidelity with no issues...my traditional IRA has been sitting at $0 for months since, just waiting for the start of the new year. If they're closing the account because you rolled it over that's something spe”

“Anyone has experience with adding money to traditional IRA and rolling it to ROTH doing backdoor conversion on post tax income through BoA Merril Edge? I moved the maximum amount allowed to traditional IRA from my savings (W2) income. When they rolled over the money, they said they will need to keep minimum balance in traditional IRA account so as not to close it.I reluctantly agreed. But now I am finding that I have the right to roll over all of my allowed contribution (7500) into ROTH. I calle”

“Throwaway because IRL people know my other account. I'm trying to do a Roth conversion after mistakenly mixing pre- and post-tax IRA contributions. If it matters, I file married filing jointly; all amounts below concern my IRAs only , separately from my spouse's. Contribution and conversion history I made nondeductible traditional IRA contributions of $6,000 for each of 2019, 2020, and 2021. Both the 2019 and 2020 contributions were deposited during calendar year 2020. I converted $12,00”

“Worth flagging the pro-rata rule if you have pre-tax IRA money alreay; backdoor Roth gets messy fast then. [re: Thought I was ineligible to contribute to Roth IRA, but I can?]”

“Only caveat is the pro-rata rule if you have pre-tax IRA money sitting aroud. [re: Thought I was ineligible to contribute to Roth IRA, but I can?]”

“Roth 457's don't have the "withdraw contributions only" feature that Roth IRAs have. You're taxed on the withdrawals pro-rata, i.e. if your account value is $200K, and $100K of that was contributions, you can withdraw after separation and before 59.5, but you owe taxes on 50% of the amount you withdraw. Trad 457's allow withdrawals at separation and you're taxed on the whole amount of withdrawal. [re: Roth 457 vs Traditional? (24)]”

“That's just the way the rules work. If you do the "return of excess contributions" process, it takes out the contribution + earnings. The other methods are only based on the contributions, not the earnings. [re: HSA overcontribution and tax implications]”

“ok.. was the employee contribution made in 2026 ? [re: How to fix solo 401k employer overcontrib ?]”

“Hello, I’ve contributed 7000$ directly to Roth IRA in 2025, but had no taxable income. I’ve extended the filing deadline to October 15 as well. What have I done so far: - Completed the Return of Excess contributions with Schwab for 7000$ + any profits from that money (~about 700) - From my understanding these ~700$ considered taxable for 2025 year - I won’t receive the 1099-R form for 2025 but will receive one for 2026 with P under Box 7 - Now in order to file 2025 returns, I will need to fill o”

“If you take advantage of gold benefits and move only a Roth to them, it would all make sense, especially if you max out your roth contributions. $7500×3% match is $225 in free money. Even subtracting out the $50 membership fee, you are still well ahead. If you are in it for the card only and shifted all your $1k a month in CC spend to the GC it would still make sense to bank $30/mo in cash back. If you have other cards with better than 3% for things like gas or groceries and thats the bulk of yo”

“Are you maxing 401k meaning mega backdoor Roth 401k? If not then consider that of your 401k rules allow that [re: Maxing everything, taxable is all index funds. Where does real estate fit if we don't want a second job?]”

“Keep maxing your tax deferred accounts (do neither of you have access to a Mega Backdoor Roth?) and put the rest in a taxable brokerage account and keep investing in ETFs. [re: Maxing everything, taxable is all index funds. Where does real estate fit if we don't want a second job?]”

“Maybe the actual details of this aren't clear yet, but I'm trying to clarify the last box in red. If someone already has an IRA (or Roth IRA) and makes a contribution, and they are financially eligible as low-income, will the government now add $1,000 as well? submitted by /u/starlightskater [link] [comments]”

“I didn’t realize I’d be over MAGI limit when I made Roth contributions. EDIT: no matter what I will remove my over contribution I was hustling to do a timely recharacterization but now see that since contributing, the earnings on the contribution (Net Income Attributable) were higher than 6%. EDIT: comparing it to the 6% is perhaps confusing. It is just a way to indicate there is a chunk of money there. Again, I will remove the actual overcontribution amount. 1) So, best to pay the 6% penalty on”

“Just do a back door, Roth, it’s like one extra step, I’ve been doing it for 15 years [re: Thought I was ineligible to contribute to Roth IRA, but I can?]”

“I got the idea of STRs working with my CPA. I have a ton of non-retirement investment income this year that I need to offset. I qualify for TTS but missed the mark to market election back in April (not sure it would've helped me anyways because I'm overall profitable for this year). So other than some home office expenses I need to find other big vehicles to help me deduct that income, to which my CPA pointed me to STRs on the contingency that I met the requirements for material particip”

“Trump account $5k a year and convert to Roth IRA when he's 18. [re: Prioritize brokerage account for child instead of 529?]”

“At 24 and below the income limits I’m going hard on the Roth options. [re: Roth 457 vs Traditional? (24)]”

“You might want to see this subreddit r/457deferredcomp [re: Roth 457 vs Traditional? (24)]”

“Does your employer offer a mega backdoor Roth 401k? That is a great way to catch up in a hurry. [re: How to maximize Roth Conversion of 2-3M after age 60?]”

“What would be the tax benefit? It's a Roth IRA so the contributions are after tax [re: Can I withdraw money from Roth IRA that wasn’t invested and use it for the following year?]”

“Isn't the tax benefit when you withdraw gains? Which you can't do until a certain point anyway. You can always withdraw contributions though... Just don't see why you would outside of a real emergency [re: Can I withdraw money from Roth IRA that wasn’t invested and use it for the following year?]”

“Trying to get the tax benefit on the money twice, I guess. [re: Can I withdraw money from Roth IRA that wasn’t invested and use it for the following year?]”

“Tax-wise it's a wash. Traditional plus a same-size conversion lands you at the same taxable income as Roth contributions. The one real edge is that you can size the conversion in December, when you know the year's actual numbers. Check the catch-ups first though. If your FICA wages from that employer were over $150k last year, the 60-63 catch-up has to go in as Roth starting 2026, so that part isn't your call anyway. [re: Should I prioritize Roth conversions or Roth contributions?]”

“Roth conversion once they are 18, with income and their taxable is extremely low or under the threshold. [re: Trump/530A Accounts - What is the Use Case?]”

“Hey all, first off thanks for everyone helping me navigate a previous post for the backdoor Ira, you all saved my butt and I learned a lot. What I’m curious about now are various strategies and opinions about how often I should perform the backdoor next April 16th when I can start contributing to my traditional Ira again. Should I perform a backdoor every month in order to get my contributions to my Roth as quickly as possible to invest or maybe quarterly? Does it get too complicated with the mu”

“That top comment nailed it, the traditional 401k contribution wiped your taxable compensation down to zero so there's nothing left to justify the Roth IRA contribution. It's not that the limits overlap, it's that you straight up don't have eligible income anymore after the deduction. You could switch some of that 401k to Roth and leave yourself enough taxable compensation to cover the IRA contribution. The math gets a little messy since you'd need to leave at least $7k on the”

“at under a grand just take the rollover and forget about it, no taxes now and it keeps compounding in the traditional ira. the lump sum might feel like free money but you'll pay taxes on it this year for no real reason when you could just park it and let it ride. easy call [re: Still confused about rolling over 457(b) plan to SEP-IRA or Traditional IRA (California)]”

“Suppose you have $30,000 ordinary income and $70,000 LTCG. After subtracting the $16,100 standard deduction, you have $13,900 taxable ordinary income and $70,000 taxable LTCG. For 2026, the 0% LTCG bracket extends to $49,450 of taxable income. Since your ordinary income occupies the first $13,900 of that bracket, $35,550 of your LTCG is taxed at 0%, and the remaining $34,450 is taxed at 15%. Your ordinary income tax is $1,420, and your LTCG tax is $5,167.50, for a total of $6,587.50. Now suppose”

“This is likely what I will do. At minimum keep funding the Roth. [re: Can I stop contributing to my retirement?]”

“5.75% - why do you ask? [re: Can I stop contributing to my retirement?]”

5.75%. Why? [re: Can I stop contributing to my retirement?]

“Not much, but a few stones to turn that might be useful. You had a 401k at either job, so any Traditional IRA contributions would be non-deductible. Though sure, you can backdoor Roth IRA for future tax savings. Itemized deductions if you have enough to add up to exceed the standard deduction – state & local taxes, mortgage interest, charity donations, medical expenses above a 7.5% AGI floor, and so forth. HSA contributions if you qualify. [re: Tax question for new pay bump]”

“Yep filed the 8606 for 2025 so the basis is tracked. No other IRA balances anywhere else, this trad is the only one. You're basically looking at converting the whole thing and paying tax on the ~$200 gain which is nothing in the grand scheme. I'd just convert it all now, pay the small tax next spring, and have a clean zero balance for future backdoor roths without the pro-rata headache. [re: Backdoor Roth help!!]”

“Ok, thanks. I see. As others have said, after the $250k exclusion the rest will be taxed at $15% up to about $550k if tge gain (assuming single filing status) and at 20% above that. The portion of the amount that brings his total taxable income over $200k (again assuming single filing status) will be subject to the additional 3.8%“NIIT” tax. [re: Help with capital gains on sale of house - U.S.]”

“The best option would be to leave the money in the 457(b), because there is no penalty to withdraw it. There will only be income tax. [re: Still confused about rolling over 457(b) plan to SEP-IRA or Traditional IRA (California)]”

“Hello! I’m 36 and new to IRAs (better late than never!). I opened a trad IRA due to our AGI being over the direct contribution cap for Roth this year and have put about $2500 in it since 2025 and invested and it’s appreciated about $200 maybe. I learned about backdoor Roth recently which seems like something I should be doing instead. All the guidance that I’ve read on it though assumes you just put the money into the traditional IRA, let it settle, then convert it to Roth via backdoor. I’m a li”

“Rolling it over generally means no taxes, and it means that the money can keep growing tax-deferred in the new retirement account. The exception would be if you chose to roll this to a Roth IRA, but that is taxable only because you are taking money that hasn't been taxed and putting it into an after-tax account (if you just directly contribute to a Roth IRA, that money is also taxed, because that's what after-tax means). There's no early withdrawal penalty from a 457. That's a sp”

“Want to make sure I'm understanding correctly how this works before finalizing my tax return: In 2025 my only income was $24,675 of 1099 contract work through my LLC (single-member, just me in a company I run my freelance contracts through), plus $2,016 in unemployment in January-February from when I got laid off from my W-2 job in 2024. I opened an Individual 401k in late December, and now I'm preparing to make those contributions by the 10/15 extended tax return deadline. I also made t”

“I don't believe in dispensing tax advice when I don't know all your personal facts, but am happy to share what I did. I did my first ROTH IRA conversion during the credit crisis when stock prices were in a freefall and my IRA had been obliterated. A couple of years later, after I was laid off, our marginal income tax bracket plunged and I began to make conversions each year - usually towards the end of the year when I had a pretty good idea what our marginal tax rate would be for the yea”

“Occasionally it comes in handy for tax planning to do a trial/"what if" return. Recently I found myself needing to plan some very large Roth Conversions. I had questions. Should I do it in 2 years or 3? Roughly how much will the tax actually be? How much should I withhold? Since the conversion (and the withholding) need to be done by December 31, I can't just wait until I do my 2026 tax return. This site will do this, and the 2026 data is already loaded. I hope this helps someone.”