Back-door Roth IRA

I am quite new to investing (other than losing $90K in penny stocks back in 2004 and then staying away from market until about 2 months ago).

This information may seem very basic to most of you but I thought I would share since I really wish I knew this before. Due to my income level, I am not able to contribute to Roth IRA directly. However, there is a way around it:

  1. Open Traditional IRA account. I cannot take current year deduction for it because I max out my 401K.
  2. Contribute after-tax money to it. $5500 limit for 2017 and $5500 for 2018 ($6500 if you are over 50).
  3. Open Roth IRA account. Request your broker to convert Traditional IRA into Roth. Since your contribution to traditional was already after-tax, there is no additional tax implications and your gains grow tax free.

This was new and very helpful information for me.

Now, I need to figure out which stock or stocks will have highest growth. My highest conviction is ANET and SHOP.

Thank you to all the board members for providing so much valuable information here. I learn a lot and continue learning. DOING NOTHING seems to be the best way after your initial investment. I could share a few crazy things I’ve done when market went down in February (brought horror memories of me losing $90K in 2004 but I cared so much less back then as I was still in my 20’s and didn’t have kids) so I hit that sell button way fast and way pre-maturely losing quite a bit in a day and what’s worse, ALL of those stocks, ALL of them regained what they lost plus a lot more. Lesson learned.


If anyone is willing to provide input, it will be very welcomed by me and much appreciated.

Considering that I only have $11,000 in Roth account (max for 2017 and 2018), would you recommend to just put it in a single stock or split it between multiple? Diversity is great but $11K is pretty small account. Commission is not a problem as they threw 500 free trades (to be used in 60 days, thanks Ameritrade, but 60 days???)


I am not a tax professional, but I’m under the impression that back-door slammed shut in the latest tax legislation (for tax year 2018 forward). [I do hope I’m wrong … someone more knowledgable, please let us know if it’s still on the table.]

Unfortunately for those still wanting to back-door for tax year 2017, I believe the conversion had to be completed by Dec 31, 2017. Even though the IRS does give you until ~ 4/15 to make 2017 contributions, you can only back-door convert in the actual calendar year. [I’m happy to be wrong on this, too.]

As for how to deploy your self-directed contributions, I too started out in your exact spot. I worked in slowly, starting with my 2 or 3 highest conviction stocks. Remember to consider your Roth in the broader scheme of your entire investment portfolio:

  • Do you also have an existing or any old 401Ks out there? In what are they invested?
  • Do you plan to also build and invest in a regular (non-IRA), taxable account?
  • If you can (and desire to) invest more than your $5,500 Roth contribution, would you invest your next incremental dollars in a traditional IRA, your 401k, or a regular account?
  • And would you want to self-direct those non-Roth investments in individual stocks, as well? Or have some institutional investments (or indexes) but use your Roth to begin your stock journey?

None of these questions have right or wrong answers, just some things to consider in determining your best path forward.

They call me,


You can still do a back door Roth, you are no longer allowed to recharacterize the conversion.…



This has been very helpful, thank you!

My 401k is still with my employer and I have limited investment options there but they have done fine. I max out contributions there.

Unfortunately I cannot add more into Roth because of my income being too high. Thus I was forced to use back door Roth.

Ameritrade just converted my 2017 and 2018 contribution this month. So hopefully there is no requirement to do so by Dec 31. Fidelity rep at work that told me about back door Roth didn’t mention this restriction either.

This thread would actually be more appropriate on the Retirement Investing board.…



If you are going to buy “Saul” companies, you must understand and have belief in the companies.

Anything less and you will lose money buying great stocks.

Let me repeat that.

Anything less and you will lose money buying great stocks.

Read the Knowledge Base. Analze all of
Saul’s current holdings. Listen to the latest confrence calls, watch the presentations at the investor conferences. Then and only then, buy one company. I recommend 8 to 12 percent of the portfolio. Then watch the other 8 to 10 companies, buy the another one the next month. It is OK to cheat here. If you don’t know and the conversation here indicates that the smart people are buying, you will know who has the good instincts, (hint: If I am buying you might want to take a short position) and who does not.

Once you are 100 percent invested, then it gets hard. You will love all your companies. This is a bad thing. This a market. The best investors are like sociopaths, they will dump a pretty girl in the rain that they have been dating for a year if a prettier one gives him a nice smile.

Save your love for your dog.

I followed Saul and sat in cash for a over a year, then I invested a little each month starting last April. Last month I had to sell EXAS to buy Nektor and Pure Storage. It actually hurt. Sometimes you just gotta toughen up.

Qazulight (Married the third girl I dated. Kissed the first time in 1978. Still kissin’ on her)


Once you are 100 percent invested, then it gets hard. You will love all your companies. This is a bad thing. This a market. The best investors are like sociopaths, they will dump a pretty girl in the rain that they have been dating for a year if a prettier one gives him a nice smile.

This is a key factor in Saul’s historic performance…and is a delta from the Motley Fool’s philosophy of being very reluctant to sell.


Yes, you can still do it, but there are considerations. One goal of people doing this is to put the after tax money into a traditional and then convert to Roth immediately. With no gains to convert, there are no tax consequences to worry about. But, if you have traditional accounts already, then opening a new one and converting it gets “averaged in” with your existing accounts. Say you have a traditional that you don’t want to convert because of tax consequences, so you try this back door. The IRS will recongnize your trick and make it messy.

You can do this for yourself or your spouse or both. Or you could pick the person that does not have an existing traditional IRA and just do that. (all within whatever other restrictions there are).

*I am not a financial advisor, planner, CPA, CFA or anything worthwhile. Everything I say may land you in jail and should be ignored. Talk to a financial planner, or Google, but no me.


Qazulight (Married the third girl I dated. Kissed the first time in 1978. Still kissin’ on her

Love it…good on you Qlight. Married for 46 years.

The best advice I learned here is to sell your losers regardless and buy more of the winners. Had a couple of stocks just going nowhere for the last 2 months. Were doing Ok, but Ok was just not good enough, so over the weekend did my research…first thing a.m added to Ntnx, Ayx and increased by 5% my Square holdings.

Still have a lot to learn though as should have got out of LGIH around the $77.00 mark instead of finally pulling the trigger in the high 50’s today and used the cash to increase the above holdings sometime ago and therefore had an even higher return. But pleased that I wrote it all down over the weekend and was determined to carry this out. My discipline is improving, I don’t fall in love with any stock anymore, and you know, I don’t care now what has happened in the past, working on what is going to happen tomorrow.

Cheers. Bran.
p.s. Was so happy to add to Anet at 241


<<<This is a key factor in Saul’s historic performance…and is a delta from the Motley Fool’s philosophy of being very reluctant to sell.>>>

I believe this is the most common criticism of Fool stocks. The rule is like this because so many of the greatest stock picks have crashed. As an example EXEL just bombed. Within 1 to 1.5 years or so it was up, what, 10x from the crash point.

That is biotechs. And biotechs are biotechs.

Other companies that are non-biotech have done similar things.

However, I believe the issue missing here is the CAP + Growth rate into the SAM. Companies with a low CAP, if their stocks crash, perhaps you don’t have to sell at the bottom, but I do’t know why they are on the list at all. Trivago love their ads. But what is their long-term competitive advantage? They simply keep putting out more and more ads, so that every dollar they make goes out in further ads. This is not a “land and expand” strategy like Nutanix or SHOP or Pure or ANET and the like use. With ANET able to do so without sacrificing profit (another amazing thing regarding ANET).

When growth drops as well, I don’t see why continue to hold. I mean, look at Qualcomm as an example. Dead money since what, 2006? Qualcomm may come back to life with 5G, but they exhausted their SAM, and became a great cash cow, but growth was zilch.

NTAP, same sort of thing for the longest time. I don’t want to hold a decade for a stock to go up again.

So yes, the time to sell is what the Fool is not very good at ascertaining. It is just not in their philosophy. Their philosophy is, keep holding because the 10 baggers will make up for the Trivagos.

And they have been very successful with this philosophy.

Like Saul, there is a time to sell.



NTAP, same sort of thing for the longest time. I don’t want to hold a decade for a stock to go up again.

And on the topic of NetApp (which I also just mentioned in my follow-up to my rough projections for PSTG), they’re laying off some employees. Wonder how this plays into the PSTG story?…

The holding on for a decade waiting for a stock to go up again presents a massive opportunity cost, for sure.

I do not hear Pure laying off employees. In fact Pure is hiring. I would not be surprised if Pure received multiple resumes from these laid off employees. We know that Nutanix has not been able to meet their hiring needs.

That is very telling with NTAP. Again, perhaps we read too much into things sometimes, but given how precious skilled employees are to PSTG and NTNX in this industry, particularly software types, laying people off like this does send a message to both future employee recruits and to current and projected business.

There is new management in charge, and perhaps old management did not properly chafe the wheat, so maybe these layoffs were necessary as people employed in legacy declining products, maybe not. Don’t know. But given the competition for talent, one would think that other places might be found for them in non-decling products.


“a delta from the Motley Fool’s philosophy of being very reluctant to sell”

That’s because most MF services presume an ever-present cash pile to buy the Next Big Thing, rather than a portfolio of X number of stocks. Saul and the rest of us are dealing with a finite portfolio and a finite amount of real-world money for investing.


Tinker, I would not say TMF ‘has been very successful with this philosophy’ (not selling) because it is exactly that: an academic exercise inapplicable to real life.

Let’s take a look at what TMF does with their listed fund: Morningstar - enter FOOLX - portfolio - holdings - annual turnover - ahem! …38%!

You may be right Strelna.

I ahve not followed all their recommendations for all these years, but there have been some that just ache watching happen. From now selling AOL at the top when it was very clear broadband was coming to take down their dial up modem empires to losing all on a company selling a disruptive, but short lived, portable drive. There are many such examples.

Then again, there are also many such examples as Bidu, Amazon, ISRG, SHOP, and so on. I was always against the two new recommendations a month. There are only so many great companies to go around. I think it does a disservice to investors relying upon them. But people have too short of an attention span and you always have to give them something new.

I do not know how you get a Trivago as a rec, and not have a Nutanix or Pure.

But no one and nothing is perfect, and we are here today because imperfect people had a vision and have done quite well not only with it, but also helping us all learn how to invest and giving us a forum in which to do so.



These have been some great insights and I must admit that THE BEST THING that I got so far from subscribing to SA and RB is finding out about Saul’s board. Absolutely priceless!!!

I have read all knowledge articles and have gone through month-end posts by Saul and Bear and others. THANK YOU so much for that information.

Tinker, I must admit that your posts, besides being quite informative, I get such a kick from your humor, too.

My husband thinks I am having an affair with this board since with limited free time that I have (work full-time and have 7 year old twins), I spend it reading this board (and NPI too but that one is a bit too much for me as it gets super busy with politics) and then reading about companies. I think I read at least last 5 years of posts.

So far, I have bought ANET, SHOP, AYX, PSTG, ABMD (I believe from NPI). STUPIDLY sold off little holding that I had in TLND during panic attack when stocks were going down in Feb and SQ at a loss! From limited knowledge I acquired so far, I didn’t hesitate to buy more ANET after it went down after earnings at $251. I most definitely want more SHOP but keep waiting for pull-back and I already know it in my heart that it is silly and I should just buy more. Trying to overcome “price anchoring” which has proven to be very hard, especially when you have husband who keeps reminding me that inevitably, stock market will have another down day. And I keep arguing with him, based on my reading here, that yes, there might be another pullback but if today’s price of SHOP is $142 and it goes to $200 and pullback is to $170, then well, it is still higher price than today.

I hope to learn more and more, and hopefully one day be able to be a contributing member as well.

I do apologize bringing up Roth IRA info here and yes, retirement board would have been more appropriate. My thinking here was “I don’t read retirement board” and there are other people here who are still not close to retirement and possibly don’t read that board either and didn’t know about back-door Roth if they are not eligible to contribute to Roth directly and could you this information. I did not have traditional IRA before so it was a clean convert into Roth.

I have been with the same employer for 18 years and have 401K account but they don’t allow individual stocks there and limit us to a set of mutual funds. So unfortunately, I can’t do much there :(.

I love your advice that holding forever, as TMF recommends, is not necessarily best play. I just need to get over taking tax consequences as a decision to hold or sell…

Dang, I wish I had found this board in 2004 when I found some penny-stock board and was following them blindly and losing $90K. Thankfully, I have a lot more now but the fear is still there and I am taking baby steps until I learn (although just following some people here will probably be the best thing).


I’m doing the same back door Roth conversion with not much in it yet. Since I’m already diversified in my company 401k, I chose to the buy only the two stocks I liked the most, split 50-50 in the Roth. I will buy the next one I like the most on the next iteration.


7 year old twins! min are 14 year old twins. I always say being a “singleton” parent is boring.

Your husband is not wrong. The markets will crash again someday. You have not been through a crash.

What happens so often is that people get cocky, and they do not realize that there is no such thing as easy money, at least if you want to keep it.

What you do have to understand however is that those who persevere, who hold quality, and do not buy at bubble valuations, and have patience, will do well through thick and thin.

You have to be willing to take paper losses in the stock market in order to eventually build wealth.

What scares me are companies, I will use Sonus (SONS) as an example. It use to be a multi-billion dollar company. Leading company on the cutting edge of VoIP back in the early part of this century. They are still in business. But they never had the ability to turn their business into a profit center.

What market crashes do in the end, is not only shake out money, and create fresh opportunities (noting that the best companies still seem “expensive” even after crashes) is that they properly value formerly storied stocks that never had the business to match their stories.

Thus, why it is so important to find businesses that can actually successfully create real cash flow and/or profits in the long-term.

That is what creates security. Not that stock prices will not go down, perhaps way down, but confidence in the business and in the valuation you bought the business for, and then holding through thick and thin those businesses whose time to sell has not come.

I find this the greatest and most disastrous mistake new investors make, particularly in times when it seems like we are shooting fish in a barrel.

You are in it for the long haul. I remember a French lady I would converse with through these boards back earlier this century. She was going to surprise her husband with a new wing on the house (or some such thing - as he would be so impressed with all the money she made). Then the market crashed. I have not heard from her.

Those who buy quality, contribute every month, don’t buy in bubbles (yes, easier said than done of course, but that is why valuation does matter, just not in the manner the text books say), and are not out to get rich quick, but put a goal. Lets say by the time your twins are 18 or 19, that is a good timeline, and not get one’s emotions wracked up with how the market is doing.

Well then, along with your 401K, your house, what your husband is doing, then I see a person who may very well be financially independent, or at least comfortable in that time period.

Welcome to the Fool.

And remember we only know who we are and who cares for us in times of adversity. The same is true in the stock market. Persevere.


“7 year old twins! min are 14 year old twins. I always say being a “singleton” parent is boring.”

Mine are 33 and I only hope they give you both the pleasure our’s have given us.


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