Automated/Least Painful Backdoor Roth IRA + Nuanced Questions

Question

As quick background, I'm an expat that has been living abroad for the past 8+ years, and have been and continue to be ineligible to contribute to an old Roth 401k that I still possess with my previous US employer. I now want to start contributing again, so plan on rolling that over to a new Self Directed Roth IRA as a starting point.

I have perused quite a few articles and answers on this site regarding Backdoor Roth IRAs, but remain unsure of what the best possible execution of this strategy is in practice.

1. My understanding is that every year, I have to create a new Traditional IRA account, then convert it (which really just means closing it and transferring the balance to my existing Roth IRA, please confirm)

2. Main question: what's the EASIEST way to actually execute this strategy every year (i.e. in terms of actual details, etc.) Especially being sure to minimize the gap between contribution and conversion. a) I would love for this process to be "automated" or at least as frictionless as possible with minimal fees, e.g. if somehow there's a provider that handles this directly (I tell them the yearly amount and destination Roth IRA account and they handle the rest) or even automating it myself via providers that give access to APIs (guessing this is highly unlikely)

3. Spousal IRA Contribution: My wife does not work, can I also contribute up to the limit (currently $6K) into another Traditional IRA account under her name and also convert it to the same Roth IRA I already have in the same year? i.e. effectively contribute $12K total per year without any issues. https://www.investopedia.com/ask/answers/160.asp

4. 5 year rule: Another confirmation, each of the converted Roth IRA contributions has its own five-year clock on it, right? So one can still pull out money tax and penalty free on "other" contributions that are already 5 years old, i.e. does not affect the entire account.

5. Any other pitfalls to be wary of, or is this even worth doing?

Answer 1

1. You don't have to open and close a traditional IRA every year. You can create one, convert everything so it's empty, but leave it open until next year. But doesn't make a big difference because creating a new account at a brokerage where you already have other accounts is usually a pretty quick process.
2. I'm not aware of any brokerage that fully automates this. In most cases, you'll have to log in again 2-3 days after the contribution, when the money settles, before you can do the conversion.
3. You can do a spousal IRA contribution assuming you have sufficient income, but the conversion would have to go into a Roth IRA that belongs to her.
4. When you roll over your Roth 401(k) into a Roth IRA, all the contributions you originally made to the Roth 401(k) can now be withdrawn from your Roth IRA immediately without tax or penalty. The conversions do have a 5-year "seasoning" period, but since they are almost entirely non-taxable conversions (assuming the Roth conversion is done quickly after the contribution), there is no 10% early withdrawal penalty even if you withdraw before 5 years (taxable conversions have the 10% penalty). And there is never any regular income tax on withdrawing conversions.
5. Of course the big gotcha with the backdoor Roth is if you or your spouse have any existing pre-tax IRA money, like a pre-tax 401(k) that was rolled over. Also just to confirm, are you ineligible to do direct Roth IRA contributions? You only mention that you can no longer contribute to your Roth 401(k).

Also a disclaimer that I'm not familiar with the rules for expats, though I don't believe there are any differences in this case.

Answer 2

1. It makes no difference tax-wise if you use a new or existing account. If the brokerage allows you to keep a $0 balance account, then by all means re-use it. If not, then create a new account every year.

2. I am not aware of any easy way

3. Assuming you guys file as Married Filing Jointly and your combined earned income exceeds $12k, yes, she can contribute $6k to her Traditional IRA, and then convert that to her Roth IRA (assuming she has no pre-tax money in pre-tax IRAs). Each person's IRAs are separate; the "I" stands for "individual".

4. Contributions come out first when withdrawing from Roth IRA, and withdrawing contributions never has tax or penalty. Conversions come out in order of year, and taxable amounts before non-taxable amounts in the same year. There is a penalty on withdrawing conversions within 5 years of the conversion, but only on the portion of the conversion that was taxable. A properly-executed "backdoor Roth IRA contribution" involves converting entirely after-tax funds from Traditional IRA, so would be entirely (or nearly entirely) non-taxable. Therefore, there is no penalty on withdrawing it within 5 years of the conversion, and so it would act essentially like a contribution.