"401K from the previous company. "
Generally, once you already have funds in an IRA, you can't do a tax-free backdoor Roth contribution.
You may convert any dollar amount you want from IRA to Roth IRA.
See mandatory Form 8606 to find out the effect of any non-deductible contributions (called basis) made prior to your conversion on the resulting taxable amount.
The actual tax will depend on your tax bracket.
If you recharacterize the 2023 Roth IRA contributions to a traditional IRA and take the tax deduction now, then the entire IRA will be taxable when you convert it to a Roth later. If you don't take the tax deduction now (make the recharacterized contribution non-deductible), then the conversion in the future will be partly non-taxable. It's a matter of deciding when you want to pay the taxes, now or later. (Remember that unless Congress changes the law again, income tax rates will rise for all taxpayers in 2026.)
Thanks. If I do recharacterized contribution non-deductible, then I should just leave my contribution in Roth. Since my income is not over the contribution limit, it will be less complicated right? The reason I want to recharacterized Roth IRA, I thought a deduction would be better.
Here is a great article. It's older, but the basics are the same. It's best to use TurboTax desktop to do this.
https://www.whitecoatinvestor.com/how-to-report-a-backdoor-roth-ira-on-turbotax/
@NN24 wrote:
Thanks. If I do recharacterized contribution non-deductible, then I should just leave my contribution in Roth. Since my income is not over the contribution limit, it will be less complicated right? The reason I want to recharacterized Roth IRA, I thought a deduction would be better.
In general, if your income allows you to make contributions to a Roth IRA (and you want your money to end up in the Roth in the end anyway), you should just make the Roth contribution and leave it alone. Making non-deductible contributions to a traditional IRA creates extra paperwork you have to keep track of (the IRS does not keep track for you) and the main reason to do that is if your income disallows Roth contributions.
Unless it appeals to you, most people do not want to track a basis in IRAs, which is what would happen with a non-deductible contribution. And it doesn't help you.
your original plan makes sense if you are certain your tax bracket in two years will be much lower
That's unusual, However, if your income is very low at any time, the cost of conversion could be zero.
Otherwise, you will need funds to pay the tax at that time.