I have a Roth IRA from years prior that I had contributed to when able. I had a large jump in income after finishing training and made a max contribution to the Roth IRA in 2023 that I had to recharacterize into a traditional IRA once I realized that I was going to be over over the income limit. I put that money in a VSTAX fund and let it sit there. At the end of December 2024 I put in another $7000 to max out the limit, but this money is just in the money market account not invested as I planned on rolling into my Roth IRA with a backdoor conversion. Looking further into backdoor Roth conversion I’m realizing that I probably am in for a headache.
The amount in the VSTAX fund hasn’t grown much, but I realize that I will need to pay tax on the earnings if I convert it.
I’m confused on the pro-rata rule, and what I’m actually able to conver here.
Can I just covern the total currently in the Traditional IRA to my Roth with a backdoor conversion, accounting for taxes on the earnings in the money sitting in the VSTAX fund?