I just opened a non-deductible IRA, if I do a backdoor roth conversion this year, how do I contribute to the roth IRA next year?

Question

I'm using betterment and I contributed $5500 to a 2015 Traditional IRA. This is the first time I opened an IRA. If I convert this 2015 contribution to a Roth IRA right now (because I can't contribute directly), how would I make a contribution to that Roth IRA for 2016?

I'm confused about how this works...
1) Would I only ever be able to convert once from a traditional IRA to a Roth IRA and then never be able to contribute to that roth ira again?

OR

2) Would I open up a new traditional IRA for my 2016 contribution and convert that into a separate Roth IRA, so now I would have two Roth IRAs??

OR

3) Would I open up a new traditional IRA for my 2016 contribution and convert that directly back into the original RothIRA so I would only have one Roth IRA??

OR

4) Would in the first case, I rollover the 2016 roth ira into the 2015 roth ira right away?

Any clarification would be great if you can help me clarify how I do this year after year if I want to contribute to the roth using the backdoor roth ira strategy?

Answer 1

Number 3. Create a new traditional IRA each year. Roll it into your original Roth IRA each year.

The details of how this actually happens depends on the how your IRA provider wants to do things. They might have you convert it into a new Roth IRA each year and then move the money from that Roth into your 2015 Roth, for example. Your provider will give you the forms and tell you exactly how to do it. In effect, it will be #3.

Give them a call. They will give you the definitive and detailed answer right away.

Answer 2

Whether you have one account or many accounts makes no difference from a tax perspective. You can put money into the same Traditional IRA account or open a new one; you can put money into the same Roth IRA account or open a new one; it makes no difference. All the money in Traditional IRA accounts is counted together, and all the money in Roth IRA is counted together. If you have an existing account, there is no reason why you cannot contribute into it again. It is probably easier for account management if you re-use existing accounts if they are still open; if the account was "closed" when you converted before then maybe you have to start a new one; again, this makes no difference.

You can do the backdoor Roth IRA contribution strategy as many years as you want. At some point before the contribution deadline for each year, you would make a contribution for that year into Traditional IRA (which account doesn't matter), and then at some point after that (ideally soon afterwards; there is no deadline), you would convert that amount to Roth IRA. Since right now you can contribute under both 2015 and 2016, you can, if you want, make both 2015 and 2016 Traditional IRA contributions now, and then convert the combined amount. Or, you can wait a little while before doing the 2016 contributions. Basically, it's the same as deciding when to contribute directly to Roth IRA (if you were eligible); you would just choose some time before the contribution deadline of each year to do it; the only difference is it takes two steps instead of one, and you need to fill out some more forms when doing your tax return.