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is there an income limit for traditional IRAs?

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  • is there an income limit for traditional IRAs?

    Long time reader.  I should be pulling in about 300-400k this year as a resident who moonlights like crazy.  I will max out my solo 401k.  I was wondering whether there was an income limit to contributing to traditional IRAs, and if not, whether this can be done along side maxing out a solo 401k?
    Based on my reading so far, I understand that there is an income limit for deducting what you contribute to a traditional IRA, and an income limit for contributing to a Roth IRA.  I just want to make sure I am not breaking any laws if I contribute 53k to solo 401k, 5500 to traditional IRA (post-tax), then roll over the 5500 in traditional IRA to my Roth account.
    Thanks

     

     

  • #2
    You've got it 100% correct.  The Backdoor Roth has no basis on income because you're not deducting the TIRA contribution and you're not contributing to a Roth.  This is why it's such a good idea.

    You just have to make sure you don't hold anything in non-Roth IRA accounts (TIRA, SEP, SIMPLE) in order to avoid paying taxes on the conversion as per the pro rata rule.

    Here's the link to WCI's (very good) explanation and tutorial: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

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    • #3




      Long time reader.  I should be pulling in about 300-400k this year as a resident who moonlights like crazy.  I will max out my solo 401k.  I was wondering whether there was an income limit to contributing to traditional IRAs, and if not, whether this can be done along side maxing out a solo 401k?
      Based on my reading so far, I understand that there is an income limit for deducting what you contribute to a traditional IRA, and an income limit for contributing to a Roth IRA.  I just want to make sure I am not breaking any laws if I contribute 53k to solo 401k, 5500 to traditional IRA (post-tax), then roll over the 5500 in traditional IRA to my Roth account.
      Thanks
      Click to expand...


      Wow, you must not be getting much sleep.

      By way of explanation, a 401k is a business retirement account and an IRA is a personal retirement account. Their limits are not related and you can fill out both of them.

      In addition, anyone who has earned income qualifies to contribute to their personal retirement account, but not necessarily to deduct those contributions. You (or your spouse if you aren't working) has to have at least $11k earned income between the two of you to max out your personal IRA accounts (or $13k if age 50+). As you have rightfully surmised and DMFA has confirmed, you are describing a back-door Roth conversion. As long as you don't have any pre-tax IRA accounts in your name, you will owe no taxes on the transaction.

      Be sure to file form 8606 with your 1040 for any year in which you contribute to a non-deductible TIRA and also for any year in which you convert that TIRA to a Roth IRA. There will be only 1 - 8606 per spouse needed if you handle both transactions in the same calendar year.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Yeah whaaaat, 400k moonlighting as a resident??  Holy moly.   

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