Trad to Roth IRA-Didn’t know it was a one time rollover

Submitted by Livids-Pomegranate t3_10q7xgi in personalfinance

Hi,

I made a conversion this week ($250) and didn’t realize it was only one time a year.

Now I have money in my traditional IRA maxed to $6250. What should I do? Do I have to wait until next year to do convert over? If I wait until next year, can it still fall under the 2023 tax year given it will be 2024 next year. Additionally, does the interest earned on my current balance count towards the 6500 max 2023 amount. Thanks in advance.

Edit: I’m reading about One Indirect IRA rollover a year. Does this mean one Trad to Roth conversion. Customer service said I am limited to one and couldn’t do more which I didn’t know about. So trying to understand if that’s the case

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Werewolfdad t1_j6ocz2e wrote

Why do you think you can only do one per year?

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Livids-Pomegranate OP t1_j6odgtb wrote

Someone on my brokerage customer service said I can only do 1 traditional to Roth conversion a year. Now I’m trying to look this up and understand if there are tax implications if I do multiple a year or if it’s even possible.

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Werewolfdad t1_j6oe1jh wrote

> Someone on my brokerage customer service said I can only do 1 traditional to Roth conversion a year.

That's wrong. You can only do one indirect IRA to IRA rollover per rolling 12 month period.

You could do unlimited conversions.

> Now I’m trying to look this up and understand if there are tax implications if I do multiple a year or if it’s even possible.

Are you trying to do a backdoor roth?

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Livids-Pomegranate OP t1_j6oedi0 wrote

Yes. I’m trying to do the back door Roth

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Werewolfdad t1_j6oelo2 wrote

Just convert the rest now. You'll pay ordinary income taxes on any of the gains, which should be nominal

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Livids-Pomegranate OP t1_j6ohq7w wrote

Do you mind explaining the difference of indirect IRA to IRA vs Trad to Roth? I was under the impression I’ve been doing Traditional IRA to Roth IRA but don’t understand the indirect concept

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Werewolfdad t1_j6ohx7z wrote

> indirect IRA to IRA

Your IRA custodian mails you a check made out to you. You deposit that check at a new IRA custodian.

Requires forms

> Trad to Roth?

Your current custodian moves money from your tIRA to your Roth IRA. You don't get a check

Usually just requires a click of a few buttons on the website

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Livids-Pomegranate OP t1_j6oibta wrote

Ok thank you! Sounds like I was just told the incorrect info. appreciate the help!

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Ruminant t1_j6ojlts wrote

An indirect rollover is when you take possession of the money outside of a retirement account in between moving it from one custodian to another.

For example: you withdraw the money from your IRA to a bank account, then send that money to a different IRA. Or maybe you get a check that is payable to you, which counts as you "taking possession" even if you pass it to the new IRA rather than cashing it yourself.

This is different from a direct rollover. There are no limits on direct rollovers. A direct rollover could be:

  • An "in kind" rollover, where the actual securities owned in your first IRA are transferred directly into the second IRA.
  • Your old IRA provider sends you a check made payable to the new IRA provider. For example, "TO: Fidelity Investments FBO Livids-Pomegranate" (FBO means "For the Benefit Of").

A Roth conversion is another type of "direct" transfer between IRAs, and as such is also not subject to the once-per-12-months rule.

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nozzery t1_j6odabz wrote

You can do as many roth conversions as you want. I've done them for $1. You're thinking of something else. Go forth and convert.

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BouncyEgg t1_j6odhkq wrote

> didn’t realize it was only one time a year.

What led you to this conclusion?

Because it doesn't exist.

Conversions are unlimited both with dollar amount and frequency.

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Livids-Pomegranate OP t1_j6odrjg wrote

I’m reading about One indirect IRA rollover a year

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BouncyEgg t1_j6oe73s wrote

> I’m reading about One indirect IRA rollover a year

Conversion /= indirect rollover

Friend... they are separate and distinct things.

You did not perform a rollover.

You performed a conversion.

Rollover rules do not apply to you.

Unless... you didn't actually perform a conversion. Maybe you should go back and clarify with your brokerage exactly what it is you did.

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Livids-Pomegranate OP t1_j6oezfv wrote

I moved money from a Trad to Roth IRA. So I believe this is a conversion. I believe customer service was incorrect to tell I can only do 1 a year.

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sciguyCO t1_j6oeb9p wrote

>Do I have to wait until next year to do convert over?

You are allowed by the IRS to do as many Roth conversions as you want during a given year, and for any amount individually / in total. You only report once for the total amount for the year on your 2023 tax return (filed next year), if that's what you came across?

I suppose whatever particular brokerage you have your IRA with could be more restrictive, but I can't think of any reason they would be.

>If I wait until next year, can it still fall under the 2023 tax year given it will be 2024 next year.

There are two pieces you're dealing with, with separate reporting requirements. First is your contributions, which go onto the tax return for the year you contributed for (even if the calendar date of the deposit is in the first few months of the following year). The conversion gets reported on the return for whichever calendar year you executed it.

>Additionally, does the interest earned on my current balance count towards the 6500 max 2023 amount.

No. Only new money going from your regular bank account into the IRA counts towards that max. Once contributed (which only counts what you're putting into the Traditional IRA, not the later conversion), the money you shift around between IRAs no longer matters for that limit. So any interest/growth that happens inside the IRA doesn't count against your $6500 allowed. However, if it happens before you convert into your Roth, that would result in some of what you convert being taxable (whatever interest accrued).

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nothlit t1_j6oi9i1 wrote

> Edit: I’m reading about One Indirect IRA rollover a year. Does this mean one Trad to Roth conversion. Customer service said I am limited to one and couldn’t do more which I didn’t know about. So trying to understand if that’s the case

The customer service person told you wrong.

Here, straight from the IRS:

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

> The one-per year limit does not apply to: > > * rollovers from traditional IRAs to Roth IRAs (conversions)

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