@TomD8 wrote:
@Opus 17
<<"But this taxpayer has $100,000 sitting in the bank, and you can still only do the backdoor at $6000 or $7000 per year, correct?">>
That is correct, a taxpayer's new contributions to a Roth or Traditional IRA are limited to $6000 per annum ($7000 if over 50). So the OP can only move his $100,000 into an IRA at a rate of $6000 (or $7000) per annum.
But there is no income or contribution limit on the amount of money a taxpayer can convert from a Traditional to a Roth IRA, which is how a Backdoor Roth is done. The curve ball is that there will be a tax bill on any pre-tax money sitting in any or all of the taxpayer's existing traditional IRA's, thanks to the IRS's pro-rata rule. The pro-rata rule can be a bit confusing. Scroll down to The pro-rata rule in this web reference to see an explanation:
https://www.nerdwallet.com/blog/investing/backdoor-roth-ira-high-income-how-to-guide
Of course the pro-rata rule only becomes a problem if the taxpayer already has money in Traditional IRA's.
Right, so assuming the taxpayer does not already have an IRA, they can convert $6000 or $7000 per year into a Roth via the backdoor, if they aren't eligible for straightforward contributions.
If the taxpayer already has a traditional IRA, the simplest thing to do is to convert the entire amount to a Roth IRA and use the lump sum of stock income to pay the income tax on the conversion, then if there is any money left, they can convert a further $6000 per year.
And this is all assuming that the taxpayer is OK with the tradeoff of not being able to touch the new growth until retirement age.
(We should probably also add that if the taxpayer is married, they can probably convert another $6000 or $7000 per year into a Roth in their spouse's name.)
