Backdoor Roth IRA 2023: A Step by Step Guide with Vanguard

In 2023, I made my 11th pair of “backdoor Roth” IRA contributions with Vanguard. As of January 5, 2023, the process is complete on both my wife’s mutual fund IRA account and my brokerage IRA account.

This post will give you a brief overview of the backdoor Roth, precise step-by-step instructions on how to do this yourself, and a link to a backdoor Roth FAQ that should answer any lingering questions you have.

Backdoor Roth IRA: An Overview

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Money contributed to Roth accounts does not result in a tax deduction, unlike contributions to tax-deferred accounts. Both Roth and tax-deferred accounts benefit from tax-free growth, unlike a taxable account that is subject to tax drag (which can be minimized).

Now, understand that a high income doesn’t mean you can’t contribute directly to a Roth account of some kind. You may have a Roth option within your 401(k) or similar account, although I would argue you’re probably better off with the tax deduction offered by making tax-deferred 401(k) contributions if you’re in the 32% or higher tax bracket.

While income limits are a non-issue for the backdoor, there exists one important prerequisite to be able to properly execute the backdoor Roth.

Before Attempting a Backdoor Roth

The list includes traditional IRA, SEP IRA, and SIMPLE IRA, but does not include 401(k), 403(b) or similar accounts. If you do hold tax-deferred IRA dollars on 12/31 of the calendar year in which you made the Roth conversion, you’ll be subject to taxes when making your conversion per the pro-rata rule.

You cannot have tax-deferred money in a traditional IRA, SEP IRA, or SIMPLE IRA in your name.

If you do have these types of accounts, you’re not hosed, but you need to have a strategy to move that money elsewhere or you can forget about the backdoor Roth. Note that inherited IRAs are a non-issue.

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The 2023 Backdoor Roth FAQ