Recharacterized 2 years of Roth IRA Contributions - how much to invest through Backdoor?

Question

I have mistakenly been contributing to a Roth IRA for 2020 and 2021 while my adjusted gross income (AGI) exceeded the 120k limit.

Therefore, I called Vanguard to recharacterize my contributions to my 2020 and 2021 Roth IRA into a Traditional IRA.

Now, I would like to contribute to my Roth IRA through the backdoor, and I have about 11k in my Traditional IRA.

My question is; can I only contribute 6k of this amount into my Roth IRA? Or can I contribute the entire 11k from the Traditional IRA into the Roth IRA?

If I can only contribute 6k, then what should I do with the remaining 5k in the Traditional IRA? I don’t want to be impacted by the pro-rate rule by having both a Traditional IRA and a Roth IRA.

Answer 1

You are talking about conversions, which are different from contributions. There is no limit on the amount you can convert, so you can do the full $11k, and indeed this is probably what you want to do. How much did you originally contribute to your Roth IRA in 2020 and 2021? You will owe regular income tax on the amount you convert minus the sum of your contributions (if greater than zero), but best to just go ahead and do that, as the longer you wait the more it will grow. Then going forward in 2022 and beyond, you can contribute to your traditional IRA and immediately convert to Roth, which is just a standard backdoor Roth.

The pro rata rule is not a major concern for you because it sounds like most of your balance is contributions. It's a bigger concern when you have deductible traditional IRA contributions, or a traditional 401(k) you rolled over, where the pre-tax amount is significant relative to the total.