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I'm doing a backdoor ROTH for the first time with Fidelity. My understanding is the process is simple:

  1. Create or have a Traditional IRA
  2. Create or have a ROTH IRA
  3. Put post-tax money into Traditional IRA
  4. "Convert Traditional IRA to ROTH IRA"
  5. Fill out appropriate tax forms come tax-time to show the converted amount

There are various guides on how to do this on various platforms, but what confuses me is the exclusive use of the term "convert". Within Fidelity's current website, this is a simple transfer (between the Trad IRA and ROTH IRA). Nowhere else have I seen the process described with that verbiage. Further, the verbiage has always confused me: you're simply moving money from one container (Trad IRA) to another (ROTH IRA); the money itself isn't undergoing any conversion in the same way withdrawing from my 401k isn't a "conversion", it's simply a withdrawal. I know it might be overly pedantic, but the IRS seems like the type of organization to be pedantic.

Is there a special operation that I have to use to safely move money between a Trad IRA and Roth IRA in a tax-safe, Backdoor-ROTH-friendly way, or is it as simple as moving money between the two account types - similar to how one would transfer any money between any accounts?

Note: I'm ignoring complications such as the pro-rata rule for this example.

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Conversion is a technical term used by the IRS, for example on Form 8606. I think the intent is to emphasize that you're not just moving money between accounts; it is potentially a taxable transaction. However brokerages are free to call it whatever they want; I've seen what you observe at Fidelity as well as Vanguard. But rest assured if you are moving money from a Traditional IRA to a Roth IRA, it is most certainly a conversion. The brokerage will definitely warn you that you may owe income tax on all or part of it, and probably ask you if you want to do withholding (in the case the conversion is at least partially taxable). You'll receive a Form 1099-R for the conversion and it'll be up to you to determine the taxability of it on your return.

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    Fidelity definitely mentioned I might owe tax, which was odd because when I contributed to the Trad IRA I didn't get an option to specify it as "non-deductible contribution" - my understanding is all of this is just specified on Form 8606 at the end of the year and Fidelity only reports that "money" went into the accounts - it's up to me to report it correctly on 8606.
    – WannabeCoder
    Mar 5, 2021 at 2:27
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    That's exactly right. Fidelity just knows it's a Traditional IRA; it's up to you to determine the deductibility. Likewise, Fidelity knows you're moving money from a Traditional IRA to a Roth IRA. The default assumption is it's taxable, but on your tax return you can show otherwise.
    – Craig W
    Mar 5, 2021 at 2:31

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