Ok, so I’ve been contributing to a backdoor for almost a year, and since I don’t have the liquidity to just find it outright at the beginning of the year, I put some in each paycheck. Sometimes while it’s sitting in my settlement fund, it will gain like $0.10-$0.30 before I get a chance to move it to my rIRA.
I know after a certain point, you can be taxed on those earnings, but at what point is that? If I have a total of like $5 in earnings in my tIRA the whole year, does that jeopardize my rIRA, or would I just owe on that $5?
You’d just owe on that $5.
All that’s happening with a “backdoor Roth IRA” is that you’re converting from one tax status to another, and you owe taxes on any untaxed money. If you took a deduction on your IRA contribution, that money would be untaxed going in, and thus taxed when you convert. Since you’re doing a “backdoor” IRA, I assume you’re not taking the deduction, so the only taxes due would be on any gains.
It doesn’t matter if you waited a year or more, all that matters is what taxable bucket the dollars are in when the transfer is made.
Gotcha, thanks so much for the clarification!