The Optometrist's Guide to Roth IRA and How to do a Backdoor Roth
Chapter 2B: How to do a Backdoor Roth with Fidelity | Step by Step Instructions
Update for 2025 Tax Laws:
In this chapter, we will show you a step-by-step guide (with screenshots) on how to do a Backdoor Roth for new investors. We will be using Fidelity as an example, but other major brokerages will have similar steps.
Before we get started, here are 4 requirements before attempting to do a backdoor Roth IRA:
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(1) You CANNOT have any tax-deferred money in any existing IRAs such as a traditional, SEP or SIMPLE
If you do, you need a strategy to move that money to a Roth-IRA (W2) or solo 401K (1099/S-Corp) via IRA rollover and be aware that there might be a tax bill due on the conversion.
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(2) Set up 2 Separate Accounts: Trad-IRA | Roth IRA
We will use the same two accounts to do the backdoor Roth conversion each year. So keep both accounts open!
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(3) Have the full amount $7,000 (for 2024 Limit) to fund for the 2024 Contribution first, then $7,000 for 2025
We recommend doing the full $7,000 in one step for the previous year first (2024) if you haven't done so.
Then If you have another $7,000 to contribute, then you can make a 2025 contribution as well, but again you have until 4/15/2026 the following year to do so.
Note: During 2025, you can do $583 each month into a trad-IRA ($7,000 total) and select the standard "money market" fund BUT DO NOT INVEST ANYTHING until it is fully converted into the backdoor Roth IRA. You might get a few $1-2 in gains but IRS will round down to $7,000 end of the year.
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(4) Repeat for your spouse (if applicable)
You can contribute another $7,000 for your non-working spouse via Backdoor Roth IRA as well for 2024 and 2025.
Step 1: Open up an account with Fidelity
If you are new to Fidelity, it is pretty straight forward, so we won’t go through all the steps. Again, make sure you open BOTH Trad-IRA and Roth IRA accounts.
Step 2: Contribute $7,000 to your Traditional IRA First
Once you open both your Trad + Roth IRA accounts, go into your Trad IRA FIRST, you should automatically have a Fidelity Federal Money Market Fund (Settlement Fund). This is basically cash, and where we can use to hold any money for transactions.
Next, Contribute $7,000 to the Trad-IRA account for 2025.
Note: I already contributed $7,000 for 2024 already
Next, select where the Money is COMING FROM? In this case, we are going to transfer it from a personal checking account. You can transfer it from other Fidelity accounts as well.
Then tell Fidelity where your money is GOING TO for your 2025 Contribution (this amount would be $7,000), and it will automatically be placed in your Federal Money Market.
25 days Fidelity Holding Period
⚠️ PLEASE NOTE that in 2025, Fidelity drastically increase their holding settlement period to over 25 days if you do the transfer on FIDELITY, from your checking bank , which negatively impact the Backdoor Roth IRA causing gains, resulting in a MORE complicated tax situation at the end of the year.
So we do recommend doing a ACH TRANSFER from your checking bank to Fidelity avoid this delay, just notate your Trad IRA Account #.
Finally, you will click Accept and get a Confirmation Statement
Step 3: Wait 3-25 days for money to settle before making the Roth Conversion
It usually takes a day or two for the $7,000 to transfer from your Checking account to your Trad IRA.
It might take up to 25+ days for your money to settle in your Trad IRA before you are able to convert due to Fidelity's new Security requirements in 2025
Step 4: Convert your $7,000 to a Roth IRA via Backdoor
- (1) Once your $7,000 Settles in your Trad-IRA
- (2) Go to the top Menu "TRANSFER"
- (3) Within your Trad-IRA account, select "Transfer to Roth IRA", once your $7,000 has settled in your available balance
- (4) Tax Withholding Information : Select "I understand that I'll likely have to pay taxes later"
- You will be given some information that the conversion is a taxable event that cannot be reversed. Well this isn’t exactly correct, because the final net contribution is a non-deductible $7,000 contribution.
- For 2020, there is a new tax reform that eliminates the ability to re-characterize (or undo) Roth Conversions.
Choose the account (Trad IRA) to convert. Make sure you TRANSFER "Convert" ALL of the account
- Leave this Trad-IRA account open so we can use it for next year, then hit CONTINUE
Review and Submit
⚠️ If you get this message, then it means that your money have NOT settled yet and might take up to 25 days with Fidelity's new security. You can see that I had 7 dollars gain during this wait, so I would have to convert the whole $7,007 and fill out the FORM 8606 end of tax season.
"We're unable to process your transaction because you have another request in progress. Choose another account or wait until your request is complete"
Step 5: Select your investment funds within your Roth IRA
Remember to buy your funds once you have the $6,500 in the money market. BUY YOUR INVESTMENT FUNDS. Think of your Roth IRA as an additional retirement accounts, so choose your investments accordingly.
Financial Reminder
"Please remember that once you convert money market fund (basically cash) from your Trad IRA to Roth IRA, you actually have to chose + BUY the Index Funds ETF like a Vanguard Total Stock Index (VTI) for it to grow within your Fidelity Brokerage account. It is surprisingly too commonplace to see many optometrists who are shocked why their Roth IRA return 0% for the last 5 years because they forgot to select the investments"
Step 6: Repeat for your Spouse (if applicable)
If you are married and file jointly, then your spouse can also do a backdoor Roth for an additional $7,000 even if he or she doesn't have an earned income.
Step 7: Fill out Form 86060 in your 1050 during your tax season
Here is what your IRS form 8606 should look like, but if you want additional instructions from IRS, find out more here.
*Note: This is example of 2023, but your number should be $7,000
TurboTax user: Check out the Finance Buff’s Direction on TurboTax or Check out Youtube Step-by-step direction
Step 8: Repeat every year before April 15 (Tax Deadline)
I usually like to do my Roth IRA backdoor every year around January. I do the full $7,000 amount on the same month of every year. Remember this will go into your Money Market Fund, so you will have plenty of time to choose your investments. If you forgot to do it for 2024, you have until 4/15/2025 to convert $7,000 for 2024.
I recommend selecting your investment funds as soon as possible, so your money can start working sooner.
