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Let's say I already have a traditional IRA account with a brokerage, and I've used it for tax deduction last year. Now, I want to use the backdoor Roth conversion method. From what I have ready, I would have to open a new traditional IRA account and then convert it to Roth IRA.

Can I open a second traditional IRA account with the same institution? I am trying to minimize number of brokerages that I work with...

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Yes, you can. It is not needed in a scenario you described, but can be useful if, for example, you want different mixes of investments or different beneficiaries or something like that.

For the purpose of contribution limits or conversion calculations all your IRA accounts in all the brokerages are lumped together and considered one. So there's no benefit in having a special traditional IRA account just for conversion to Roth when you already have a traditional IRA account. You need to remember that the conversion will be prorated based on the balances in all your traditional IRA accounts.

Let's use some example. In the comments you suggested that you contributed $5K last year, which were used for a tax deduction, and you want to do a backdoor conversion for another $5K this year.

You'll have 10K in traditional IRA of which you converted 5K, so the converted 5K would be prorated. If the second contribution was after tax then it will not be taxable, but the first contribution was pre-tax, so it would be. In this case you'll have to recognize 2.5K taxable income (50% of the conversion, since 50% of the balance was pre-tax). It would be best to completely empty all of your traditional IRAs for this to work most efficiently.

I wrote a detailed answer including describing the technicalities of the reporting, to a similar question here.

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  • I don't understand the prorate part. Say, I have $5K in an existing trad IRA account, already used for tax deduction. I now open a new trad IRA, contribute $5K post-tax, and convert that to Roth. That shouldn't trigger any taxable income, right?
    – fatdragon
    Jul 30, 2022 at 19:24
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    @fatdragon wrong. You'll have 10K in traditional IRA of which you converted 5K, so the converted 5K would be prorated. If the second contribution was after tax then it will not be taxable, but the first contribution was pre-tax, so it would be. In this case you'll have to recognize 2.5K taxable income (50% of the conversion, since 50% of the balance was pre-tax). It would be best to completely empty all of your traditional IRAs for this to work most efficiently.
    – littleadv
    Jul 30, 2022 at 19:38
  • Please consider incorporating your response to the OP's comment into your answer.
    – Dilip Sarwate
    Jul 31, 2022 at 14:20
  • @DilipSarwate done
    – littleadv
    Jul 31, 2022 at 16:06
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    It's prorated because when you open the second traditional IRA, you still really only have one IRA, you just happen to store it in two different accounts. Even if you open it at a different broker, or it's your 100th traditional IRA account and the previous 99 are all at different brokers, you still only have one IRA. So when you're withdrawing from your traditional IRA, you're taking money from your one IRA, no matter what account it's coming from. The same applies to RMDs, you can take your entire RMD from one account, or from multiple accounts, or whatever, because it's all a single IRA.
    – blm
    Aug 2, 2022 at 22:00

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