Backdoor Roth IRA Question

Submitted by HFrEF t3_zzzm70 in personalfinance

Doing my first backdoor Roth IRA conversion but I received a $100 bonus for opening the Traditional IRA from Fidelity after contributing $50. It's been in a money market for some time and now it's $151.66 ($50 contribution + $100 Fidelity contribution bonus + $1.66 growth).

Should I contribute an additional $5848.34 to the Traditional IRA to make total $6000 or should I contribute $5950 and have a total of $6101.66 to convert? Basically just want whatever is easiest to fill out taxes.

I did call Fidelity and they told me I don't have to pay taxes on the $100 from Fidelity, that it counts as a contribution, and that I CAN still contribute $5950 to the account but they can't advise me what is best for the Backdoor Roth IRA conversion. This confused me because if the $100 is a contribution then shouldn't I contribute an additional $5850? I know I'll still have to pay taxes on the $1.66 growth following this guide: https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/

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DeluxeXL t1_j2ejk7q wrote

If Fidelity treats the $100 bonus as an IRA contribution after your initial $50 contribution, you can contribute $5850 more for 2022. Earnings inside the account don't matter for how much you can contribute. The amount of contribution they'll put on the Form 5498 is what ultimately matters. Unfortunately, Fidelity has been very inconsistent on whether to treat the bonus as contribution or earning.

edit: Looks like Bogleheads users confirmed that the account sign-up bonus is not considered an IRA contribution (shows up as "commission credit"), so you can contribute $5950 more for 2022. However, it will be considered pretax earning since it entered your traditional IRA.

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alittlemouth t1_j2ejo7p wrote

Someone else may correct me if I'm wrong, but the $6k limit is YOUR contribution. Bonuses don't count, so you can contribute the entire $6k and take advantage of the $100 from Fidelity. So you can contribute the additional $5950 and then convert in 2023 when the funds are available. You want to make sure your balance in any traditional IRA is $0, as you will still be able to contribute $6k for 2023.

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debbiewith2 t1_j2elll3 wrote

Replying to DeluxeXL (#1,236,392)

I believe the confusion is that their terms and conditions say you can’t get the bonus if you’ve already maxed your contribution, but it never actually counts as a contribution.

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