Can I Still Do A Backdoor Roth IRA For Last Year?

Hi, Dr. Dali. I was wondering, is it still possible to do a backdoor Roth for 2023 if I haven't made my contribution yet, I am planning to make my contribution this month in February 2024. Thank you.

Okay, I think this one's actually got a correct answer to it. Let's talk about that. And let's also talk about the merits of doing it late and whether you should do it late and all that stuff, because there's an awful lot of people out there doing these contrib.

Yeah, not much to fight over here. In short, yes, you can still do it up until your tax filing deadline. So April 15th of this year, you can still make the contribution. I always say that the contribution is the important part. That's the deadline you're trying to follow. The conversion has no deadline. You can do the conversion wherever you'd want. It brings in our 8606. So we say when you start to do backdoor Roths, either do the Google search, Jim, I think you have a great one where you're walking through the 8606 or make sure your accountant knows that you did that. Probably one of the most commonly missed tax forms we see, even with accountants. And I think it's because we do the backdoor Roth and we assume it doesn't trigger any tax documents. So in defense of your accountant, if they didn't know that they're not going to file the, you know, the 8606, they didn't see that 1099 R coming out of the. Out of the back door or out of their IRA to the Roth. So 8,606 comes into play. You can still do it up until April 15th of this year. And then we can even get into next to the merits of, you know, do you do it first thing in the year or you do it later in the year?

Yeah. One thing to keep in mind, right? Even if you do a tax extension, which I'm having to do with my taxes these days, now that I've got all these private real estate investments that send me a K1 in July, even if you do your tax extension and you're not filing your taxes until October 15th, your deadline for your IRA contribution is still April. It's April 15th. You can't do it in August for the prior year. Now, this drives me nuts, though, that so many people don't do it in the calendar year and then get confused when it comes time to get their 8606s done. I do mine the first week of January, the year you're doing it for. Right. This is like the first money I save for retirement every year is my HSA and my Roth IRAs. Why do so many people do this late, Chad?

You know, it's funny too, because we actually have a day that we call backdoor Roth IRA day for our practice, and it's usually January 3rd. Depends on where the holiday falls. Right? And it's actually amazing. We have a pretty equal split of about half of our clients. We'll get it done within a few days right there. But then the other half, we're checking in again right now because we don't want them to miss that opportunity because you said, I would say there's no extension on that extension. So we're checking now with a lot of clients to make sure they get them done if they haven't done it yet for 20, 23. And it's amazing. It's truly split between the two. Ideally, we try to aim earlier in the year. We tell our clients this too, because we want the extra year of compounding growth with that tax free money. Your team just had that great post on where things can go wrong. So there are, there are certain years where waiting till later in the year might make sense so you don't have to clean anything up. But I think in most circumstances, especially when you hit your rhythm and you're, you know, you're in your attending pH, hopefully nothing divorce wise or anything comes into play there. But early in the year is where we try to aim for it. But I think there's an asterisk there on my favorite word of the day. Again, it depends where it might make sense a little bit later in the year.

Yeah, I love your phrase hitting your rhythm. Because what happens is you come out of training and you got all these great things to do with your money, you haven't done an IRA contribution for that year yet. And you're like, ah, what do I do first? And you're like, well, I got this $13,000 credit card debt at 28%. Well, let's do that first. Right? So that's what you're doing in July and August and now it's September. And you're like, well, I don't really have an emergency fund. Well, let's build that up. So that's September and October and now it's November and you're like, oh, if I don't get money into the 401k they're letting me use, I'm not gonna be able to use it. They probably don't let you use the first year anyway. But maybe you put Money in the 401k in November and December, and then January, you're like, oh, there's an hsa. Maybe I should do the hsa. So you put some money in the HSA that month, and now money's all of a sudden, now you're starting to make student loan payments. So now you're doing the student loan thing. And before you know it, it's February or March or April, and you still haven't done your IRA for the year. So that year you make a late contribution. Well, the next year you're like, well, I don't want to do that again. The 8606 was a pain. So now you do it in December, and maybe the year after that you're doing it in July, and the year after that you're finally getting it to January because you're in your rhythm. So I like that phrase you use in your rhythm. And I think this happens to a lot of people where they move their IRA and their HSA and their 401k contributions earlier and earlier and earlier in the year because they become wealthier, they got better control of their income, they're making more. They have fewer good uses for their money. There's no more 28% credit cards to pay down. And they can do it earlier and earlier in the year. And I definitely encourage people to do it during the calendar year. I think the worst time to do it, though, is not after the first of the year. The worst time to do it is the last week of the year. Because so often people get burned. They get the contribution in, they don't get the conversion done. And now they've got this. Especially if they've been doing them for a number of years now, they get a prorated transaction. And that really makes your paperwork complicated. You can still clean it up the next year most of the time, but if you want to keep your paperwork straight, do it all in the calendar year. And it just makes it a lot easier. Yeah.

And you always hit that backlog with the custodians at the end of the year. So even if you're thinking like, oh, there's enough time there, you know, there's always a backlog because everyone else is doing it at the vanguards, the. The fidelities, the schwab. So it. You get that in there, which is why it's more likely to have that small delay. And it's always just enough that it pushes to, like, the first or second. So. Yeah. And you know, one thing to note too. I always call this the the golden window for Backdoor Roth, because you do have the opportunity if, if cash is available where you can take care of a 23 and a 24 at the same time. So if you are playing catch up and trying to get into that rhythm, you do have that sweet spot right now where you can really get both of them going at one time here.

Yeah. And I think it's important to emphasize what you said at the beginning. The contribution has a deadline. The conversion does not. As a general rule, you should do the conversion as close to the contribution as you can. But there's no deadline on a conversion. You can do a conversion at any time. It just ends up on the paperwork for whatever year you do the conversion in. So. But the contributions are where the deadlines are.

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