Backdoor Roth?

[NYBuilder]

Hey All-

Wanted to reach out for some feedback, primarily concerning whether starting the backdoor Roth arrangement would be wise. For some context, here are my numbers (with my though-process after):

The combined income of my wife (30 year old) and I (31 yr old) is roughly $270,000/year.

- Checking & emerg savings (separate accounts, but combined value): $35,000 in checking/emerg savings
- Savings (leftover from home purchase): $38,000
- We bought our apartment this past summer, and after mortgage & coop maintenance, still saving about $600 or more per week

- 401k: $332,000
- Roth 401k: $13,500
- Putting about 12% income into company 401k’s

- Wealthfront/brokerage: $14,000, w/ $300/month deposits

- Pay off credit card bill each month

My thinking is that since we’re comfortably paying our mortgage & housing costs, and already have a good chunk of money in traditional 401k’s, it would be good to diversify (tax-wise) our retirement savings a bit. Since we’re already contributing beyond the company match, I’d even consider reducing our contributions to make the backdoor Roth maneuver more easily work with our numbers.

Does anyone have any experience with the backdoor Roth, and is it as simple as setting up a traditional (non-deductible) IRA, and then periodically converting it to a Roth IRA?

Would this be a good idea in my situation, or is there a better use of money that I'm overlooking?

[autoxer]

I haven't done the backdoor roth myself, because I haven't passed the income threshold, but I do think it is a good idea. I contributed mostly to ROTH accounts when I was younger and now I contribute mostly to Traditional accounts, so I have a good split between the two.

I would aim to max out the 401k and the IRA's, especially while you are in the higher tax brackets.

[jbjr12]

I started doing a backdoor Roth last year. I would echo the recommendation about maxing the 401K every year.

But if you decide the option is right for you I can tell you how I do it. I have a Vanguard account with both a traditional IRA and a Roth. This traditional account is only used for the backdoor funding. At the beginning of the year I fund the traditional IRA with the yearly max. Then as soon as that transaction is processed I roll the whole amount over to the Roth account.

The big thing to watch out for with the backdoor funding is paying taxes on any earnings you get from the funds in a traditional IRA. In my case I miss out on the benefits of dollar cost averaging throughout the year by funding the account in one lump sum. But it saves me the cost (and the headache) of tracking and paying taxes on the earnings in the traditional IRA.