Backdoor Roth if you have multiple IRA

Forum|Forum|1 year ago
March 19, 2025
1 reply
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I have been contributing excess amount to Vanguard Roth IRA for 2021, 22, 23 & 24. When I found out in 2024, I moved money into Vanguard IRA for 2023 and 2024. Vanguard told me I cannot do backdoor Roth IRA because I have another IRA in Fidelity

1. Is it correct?

2. Now in 2025 when I am doing turbo tax , it is charging me penalty for excess IRA contribution and asking me to withdraw money. Where do I move the money ???...to Roth or simply my Savings?

Please help with questions above

Ask the Experts - Changes II - Mar 2025

DaveF1006

Level 15

Yes, Vanguard is likely correct in this case. A backdoor Roth IRA involves making a nondeductible contribution to a traditional IRA and then converting it to a Roth IRA. However, the IRS applies the "pro-rata rule" during the conversion. This rule considers all your Traditional IRAs, regardless of where they're held (e.g., Vanguard, Fidelity). If you have money in your Traditional, SEP, or SIMPLE IRA before taxes, the rule will make some of the money taxable. This makes a backdoor Roth IRA less effective if you already have pre-tax IRA balances (like the one in Fidelity).

When withdrawing excess contributions, the key is to remove the funds from your IRA accounts entirely to resolve the issue. Here's what you can do:

Withdraw to a savings or checking account:
Move the excess contributions (and any earnings generated from them) to a non-retirement account, like your savings or checking account.
Moving the money into a Roth IRA doesn’t fix the problem, as the original excess contribution must be corrected.

This withdrawal will need to be done before April 15.

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rrk_ms_bharatAuthor

Level 2

Thanks @DaveF1006 for your answer.

Follow-up Question:

1. How can I inform IRS not to charge any more penalty ( after I transfer money to Saving/ Checking before April 15)… implying are there any forms which need to be filled out?

2. What ever you mention for 1, How can I do that in Turbo Tax ? ... Please give detailed steps

DawnC

Level 15

To steer clear of the 6% tax, file a withdrawal request. Contact your financial institution and request to withdraw the excess contribution, plus earnings, by the due date of the return (including extensions). After you do that and have the amounts, you can report those amounts on this tax return before you file. That will stop any penalties.

The earnings are included as taxable income for the year the excess contribution was made.

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