TLDR: 2024 income was higher than expected (good problem to have), so I need to remove excess Roth IRA contribution. Then seeking to do a backdoor Roth IRA, but I currently have a non-zero Trad IRA from contributions from 2019-2020. Looking for help on the sequencing for sorting this all out.
Remove Excess Roth IRA Contributions:
The past few years, I have been contributing (and investing) the maximum IRA contribution to a Roth IRA in Vanguard. In 2024, I contributed $1325 to my Roth IRA in the Jan-Mar timeframe. I stopped at the end of March once I realized my MAGI would surpass $161,000 (MAGI had never been in the Roth IRA phase out range before 2024).
Vanguard estimated that the $1325 earned $60 (not sure how they got that number). So I think Step 1 is to remove the excess $1325.00 (and $60 earnings) from the Roth IRA to avoid any penalties. I think my options here are to recharacterize to Trad IRA, transfer to bank, transfer in kind to taxable brokerage account. I want to transfer in kind to taxable brokerage account.
Traditional IRA to Roth IRA Conversion(s)
Next, I would like to perform a Backdoor Roth IRA (full maximum 2024 IRA contribution of $7000) to maximize my tax-advantaged positions for tax year 2024. From what I understand, I need an empty Trad IRA to perform the Backdoor Roth IRA.
As of today, I do NOT have an empty Trad IRA. My Trad IRA is in Vanguard. I have not contributed to it since 2019. Its balance as of 12/31/24 is $11,524.57 ($7277.84 principal / $4246.73 returns). Unless advised otherwise, I think Step 2 is to convert this $11,524.57 Trad IRA to Roth IRA (paying tax on all $11,524.57 since it is all deductible contributions - does not bump me into a higher income tax bracket).
Lastly, now that I have the empty Trad IRA, it should be relatively straightforward to do Step 3: $7000 Backdoor Roth IRA for tax year 2024.
I am planning to perform Steps 1, 2, and 3, as completely separate transactions with Vanguard to keep things straight. Please poke holes in this plan. Thanks yalls!
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