I recently completed a Backdoor Roth IRA contribution at (), so here is a detailed step-by-step walkthrough of the process along with screenshots based on my actual experience. M1 Finance currently has a for new accounts, based on initial deposit amount. You can also add on the for moving assets over from another brokerage firm. (Disclosure: I am now an affiliate of M1 Finance, and may be compensated if you click through my link and open a new account.)
Quick background. The Backdoor Roth IRA is a way for individuals to fund a Roth IRA even though their income (modified AGI) exceeds the phaseout limits set for a direct Roth IRA contribution. ($140,000 MAGI for individuals, $208,000 MAGI for married filing joint in 2021.) I won’t go deep into the details, but the general idea is:
- An individual can contribute to a Traditional IRA without any income limits. However, the contribution is not tax-deductible if you exceed the income limits.
- An individual can also convert a Traditional IRA to a Roth IRA, also without any income limits. You won’t owe any taxes on those non-deductible IRA contributions, because they are already after-tax.
- Perform these two steps right after each other, and you have a “Backdoor” Roth IRA.
There are other considerations and details involved, so please do your own research before taking action. Roth conversions cannot be undone. This option may go away in 2022, so if you have any Traditional IRA balances that you have been considering to convert to a Roth IRA, you may want to make your decision before the end of 2021.
M1 Finance Backdoor Roth IRA walkthrough.
Open a new Traditional IRA account and fund it. If you already have an M1 account, click on the name of your portfolio in the top right area, and then click on “Add account”.
Choose “Retirement”, then “Traditional IRA”, then read and accept the terms. Next, you will have the option to select an investment “pie”, but since you are going to convert this quickly to a Roth IRA, it’s fine to just choose something close to cash. One option is the PIMCO Enhanced Short Maturity Active ETF (search for ticker MINT), add it your pie basket, and make it 100%. Finally, you must fund it, probably using your bank account numbers unless you have an existing M1 Finance account or other ideas.
Open a separate Roth IRA account, but do NOT fund it. M1 wants you to have the Roth IRA set up before any conversion request can be made. So start like above and open a new Retirement account, but this time pick Roth IRA. You can now pick your “real” investment portfolio pie, but again don’t fund it! Just think of it as an empty container for now.
Wait for a bit. It may take a few days for your Traditional IRA to get set up, funded, and invested into something. This step is still important. Some people even wait for the Traditional IRA to generate a full monthly account statement so they have paper documentation that they completed this step. Others just wait a day and then move on.
Find both your Traditional and Roth IRA account numbers. It’s conversion time. To find your account numbers, find your name in the top right corner. Click on that, and then click on “View Account Settings”. Then click on the subheading “Accounts”. You should end up with a list of your account nicknames, account numbers, and account types.
Request the conversion, sign and return documents. You can request the conversion via their automated chat bot, secure message, or phone number during business hours. I was able to complete the entire process via chat bot and email without having to use the phone. Here’s my chat transcript with personal details removed:
USER: roth conversion
BOT: M1 Invest can perform IRA conversions. Please keep in mind that due to high volumes, transfers can take 5-7 business days to complete. To get started with this process, please reply with the following information:
BOT: What is the M1 Invest account number of the traditional IRA you would like to convert out of?
USER: XXXXXXXX
BOT: What is the M1 Invest account number of the Roth IRA you would like to convert into?
USER: XXXXXXXX
BOT: What is the amount you would like to convert (if full account conversion, please simply confirm ‘full account’)?
USER: full account
BOT: What is the email address you use to login to M1?
USER: xx@xx.com
Within an hour, they emailed me a PDF form that I had to complete and sign. I uploaded the signed PDF into their secure drop box, and had confirmation that they had sent the request over to their clearing firm within another hour or so.
Jonathan,
We have submitted this conversion to our clearing firm. Both accounts will be paused for the duration of the transfer. We will notify you once the transfer is complete and you will see the funds placed in the correct account.
If you are transferring securities, please make sure the securities you are transferring are located in your Roth IRA portfolio.
This process can take 1-3 business days to complete.
Best,
Brokerage Operations
M1 Team
Once it shows in my M1 Invest dashboard that the funds have been moved into my Roth IRA account, then I’ll be done. I should be sent a form at tax time regarding the amount converted. If I contributed $6,000 to the non-deductible Traditional IRA and the value didn’t change at the time of conversion, then I won’t have any capital gains to pay taxes on. My $6,000 Backdoor Roth IRA contribution will be complete and now I can enjoy tax-free growth and tax-free withdrawals of all future gains. I hope you find this useful for informational purposes.
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