@bmo742 wrote:
I do not have any pre-tax money in the traditional IRA and I am not planning on contributing pre-tax money to it in the future.
If you have no pre-tax money in any traditional IRA, then a Backdoor Roth is easy.
Step 1. Make a non-deductible contribution to a traditional IRA.
Step 2. Convert it to a Roth IRA (Roth IRA conversion).
You will generally want to do the conversion fairly quickly, although it may take a couple of days for the contribution to settle before you can convert it. And you may want to hold the contribution in cash or a money market fund so it does not earn too much interest. And lastly, you want to do the conversion as a direct rollover, where the custodian of the traditional IRA transfers the money electronically to the custodian of the Roth IRA (it can be the same bank or different banks, as long as it is a direct transfer, you don't want to be getting a check that you have to forward yourself.)
Step 3. On your tax return, report the contribution but don't try to take a tax deduction. This will create a form 8606 documenting the non-deductible basis in the traditional IRA.
Step 4. You will get a 1099-R for the conversion, because it was technically a withdrawal from the traditional IRA. Report this on your tax return as well.
Suppose your non-deductible basis is $3550 and the conversions was $3600 because of a small amount of interest. The $3550 is non-deductible and the $50 is taxable income but there is no penalty for early withdrawal. This is all reconciled and worked out on form 8606.
