Creating your Backdoor Roth IRA is actually simple and thats why we will talk about the process of creating a acount.
1) Put money in a traditional IRA account.
This is the first step and it is about having a traditional IRA. It doesn’t matter if yiu already have a traditional IRA or if you need to create one first. But as long as you have an account your first step is done and you can move to step 2.
Step 2) Convert your contribution to a Roth IRA
Step 2 is about your IRA administrator which will give you the instructions as well as the paperwork.
If you don’t have a Roth IRA, account then you should open one during the conversion process.
Step 3) Prepare to pay taxes.
In this step you prepare to pay the taxes. But keep in mind that only the post-tax dollars go into Roth IRA account.
Which means that if you have deducted your traditional IRA contributions and after that you have decide to convert your traditional IRA to a backdoor Roth you will need to give that tax deduction back.
And if your time comes to file your tax return then you gotta be prepared to pay income tax on the money you converted to a Roth IRA.
Step 4) Prepare to pay taxes on the gains in your traditional IRA
And this last step is about if the money in your traditional IRA has been there and there are investment gains to keep in mind.
Here you will need to owe the taxes on those gains at tax time.