If John(single) is government employee and is covered by employer sponsored pension plan, his salary is $130k. He is not sure about 2023 stock market capital gain or loss. And he makes $6500 traditional IRA contribution for year 2023, traditional IRA balance was $0 before making contribution. John makes $6500 backdoor Roth Conversion immediately after contribution. Since he is covered by pension plan and his traditional IRA contribution is not deductible.
If John(single) is not covered by any employer sponsored pension plan, his salary is only $50k. He is not sure about 2023 stock market capital gain or loss. And he makes $6500 traditional IRA contribution for year 2023, traditional IRA balance was $0 before making contribution. John makes $6500 backdoor Roth Conversion immediately after contribution, without tax withhold. Later on, his stock capital gain is $200k(all is short term) for year 2023, now his total income is $250k, and his traditional IRA contribution is not deductible, correct? In this case, he will need to pay tax on $6500 contribution when filing tax return. I am a little confused here, in this case, John ends up putting $6500 into Roth IRA, then pay tax with additional money. If John chooses to withhold tax when doing Backdoor Roth Conversion, then it will end up less than than $6500 moving to Roth IRA, correct? So there is difference, in one case, you end up putting $6500 into Roth IRA ; in another case, you end up putting less than $6500 into Roth IRA. Am I correct? It seems that we should not withhold tax when doing Backdoor Roth Conversion, otherwise we may not be able to "move" $6500 into Roth IRA.
