Backdoor ROth tax implications

[itoh]

Help me please.

If I have contributed 5500k yearly for the past 5 years at Vanguard IRA, non-deductible with after tax money,

And all these time I also contribute to employer sponsored 401K,

If I do the backdoor ROth today ONLY on the aftertax money in Vanguard ( directly from IRA to Roth IRA both at Vanguards), I only pay capital gain tax on the gains right ?

And at tax time, I have to fill 5 x 8606 forms , right  ?? One for each year I contribute ?

I just dont want to get tax saying I took out all money and pay tax on those.

 

Thanks

Dummy

[jfoxcpacfp]

itoh wrote:

Help me please.

If I have contributed 5500k yearly for the past 5 years at Vanguard IRA, non-deductible with after tax money,And all these time I also contribute to employer sponsored 401K,

If I do the backdoor ROth today ONLY on the aftertax money in Vanguard ( directly from IRA to Roth IRA both at Vanguards), I only pay capital gain tax on the gains right ? And at tax time, I have to fill 5 x 8606 forms , right  ?? One for each year I contribute ? I just dont want to get tax saying I took out all money and pay tax on those.

Thanks

Dummy

Click to expand...

First of all, I hate it when ppl post here thinking they are asking a dumb question. YOU ARE A DOCTOR - you are not a dummy.

Did you file an 8606 for each year you contributed to the nondeductible IRA? If  not, you need to file one for each year. Hopefully, you have already filed them because the SOL (Statute of Limitations) has passed on at least 2 of them.

But you will file only ONE 8606 for the year you convert them all. Any growth in the account (increase in your basis of $27,500) will be taxed as ordinary income, not capital gains. If the account is lower than $27.5k, you will not be able to deduct the loss.

[itoh]

I didnt know I have to fill the form for just contributing..Well, I sure hope my accountant did. I never ever check.

Lets say he did file, so this year I only need to file ONE 8606 to indicate the conversion ?
There is some growth I think few thousands. So I will pay 39.8% on that ?? Wow..A lot but worth it.

And this gains will be reflected on this year 8606 right ?

 

[jfoxcpacfp]

Yes, only one 8606 (unless both you and your spouse have an account). The conversion will be reflected on the 1099R you will receive and the 8606 will subtract out your "basis" so you will be taxed on the difference.

[itoh]

I only plan to convert one of us this year.

Next year I will convert the other one as it it a little more complicated. My spouse only has sep IRAs,quite a few of them and also TIAA traditional which is being converted into TIAA sep IRA, over 10 years. So I figure we will wait until it is all done (next year) then role all sep IRAs into fidelity solo 401k then do backdoor Roth next year. Does that sounds like a good plan to you ?

[jfoxcpacfp]

itoh wrote:

Next year I will convert the other one as it it a little more complicated. My spouse only has sep IRAs,quite a few of them and also TIAA traditional which is being converted into TIAA sep IRA, over 10 years. So I figure we will wait until it is all done (next year) then role all sep IRAs into fidelity solo 401k then do backdoor Roth next year. Does that sounds like a good plan to you ?

Click to expand...

Maybe, maybe not. Too much I don't know, but you have the steps in the right order.

[DMFA]

itoh wrote:

I didnt know I have to fill the form for just contributing..Well, I sure hope my accountant did. I never ever check.

Lets say he did file, so this year I only need to file ONE 8606 to indicate the conversion ?
There is some growth I think few thousands. So I will pay 39.8% on that ?? Wow..A lot but worth it.

And this gains will be reflected on this year 8606 right ?

 

Click to expand...

Yeah, probably better to pay 40% on some of it now than 25% on all of it (and its compound gains) later.

[darnabeel]

I contributed $5,500 to a non-deductible traditional IRA in 2007, 2014, 2015 and 2016 that went into into my SEP IRA (Vanguard allows non-deductible traditional IRA employee contributions to be put into a SEP IRA). I'm going to check my tax returns and make sure my accountant filed a Form 8606 for 2007, 2014 and 2015.

I plan on rolling over my deductible employer contributions that are in my SEP IRA into a new company 401K plan prior to executing the backdoor Roth IRA conversion to as the WCI tutorial recommends.

I have 3 questions:

1) Can I do a backdoor Roth IRA conversion in 2016 that includes all 4 years (e.g. 2007, 2014, 2015 and 2016 e.g. $22,000)?

2) Also what exactly are the statute of limitations for filing a Form 8606 if my accountant didn't file that form every year?

3) Also, how do I go about figuring out the gains on those traditional IRA contributions over the years so I can make sure Form 8606 is filled out correctly when I do the Roth IRA conversion?

Thanks in advance for any advice!!

[jfoxcpacfp]

1. Yes. You'll also convert the earnings and pay taxes.


2. 3 years from the due date or date filed.


3. Your accountant will do this or follow the steps on the form.

Of course, if you have a pre-tax balance in your SEP, you will either have to roll it into a Roth or be subjected to the pro-rata rule. As an aside, what is the purpose of putting a ND TIRA into a SEP? And was it counted as part of your SEP limitation?