Questions about Back Door Roth

[BoneFish]

I am currently self employed(1099) through my own LLC.  I will be joining a group and will then be a w-2 employee(with plans to be a partner in 18months) .  I currently have a SEP-IRA that I want to roll over into a 401(k).  What I have read from this site so far is that I will need to contact Fidelity to roll the SEP-IRA into an i401(k) before I start doing the back door conversions next year.  My question is, once I start working as a W-2 employee can I still keep the i401(k) as is and continue to self direct the investment.  Also, my wife, who is currently a stay at home mom, has an IRA of her own, that I rolled her 401(k) into before i finished residency.  Does her IRA effect how much I can put into the back door ira?

 

 

[BoneFish]

My new group will offer a profit sharing 401(k) which I will be eligible for Jan18.(If that makes a difference)

[jfoxcpacfp]

BoneFish wrote:

I am currently self employed(1099) through my own LLC.  I will be joining a group and will then be a w-2 employee(with plans to be a partner in 18months) .  I currently have a SEP-IRA that I want to roll over into a 401(k).  What I have read from this site so far is that I will need to contact Fidelity to roll the SEP-IRA into an i401(k) before I start doing the back door conversions next year.  My question is, once I start working as a W-2 employee can I still keep the i401(k) as is and continue to self direct the investment.  Also, my wife, who is currently a stay at home mom, has an IRA of her own, that I rolled her 401(k) into before i finished residency.  Does her IRA effect how much I can put into the back door ira?

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• Yes, you can still keep your SOLO-k.


• Your wife's IRA does not affect your ability to contribute to a back-door Roth IRA, but it does affect hers because she can have one, too, as a spousal Roth IRA. If it's not very large, might want to convert it to a Roth IRA.


• The fact that your new group offers a 401k has no bearing.

[DMFA]

You must have nothing else with "IRA" in the title other than Roth - Traditional IRA, SEP-IRA, and SIMPLE-IRAs - to avoid the pro-rata rule and taxes on the conversion. 401k, 403b, 457, etc don't factor into it at all.  As long as all non-Roth IRAs are zero, there's no tax on the backdoor conversion because you're not deducting the contribution, and it's been made with already-taxed money.

IRAs are, as the name implies, individual - yours and hers are (almost) totally separate.  Her backdoor conversion depends on her non-Roth IRA accounts being zero, and your backdoor conversion only depends on yours.  The only times one spouse's IRA is contingent on the other spouse is for TIRA contribution tax deductibility (presence of employer plan and income level) or direct Roth contribution eligibility (income level), neither of which apply at this point.

So, in case she has any non-Roth IRAs, you may want to convert and pay taxes on them (would be taxed at your marginal level) to enable the additional tax-advantaged investment each year, as Johanna suggested.

The only way in which you wouldn't be able to make $11,000 between your and your spouse's backdoor Roth IRA contributions/conversions ($5,500 into each because, again, they're individual), if your spouse is not working, is if you made less than $11,000.

[StatBariumEnema]

Quick additional question about backdoor Roths.

If I transfer my 6k or so that I have in a traditional IRA to my 401k, can I do a new backdoor Roth IRA contribution for 5500 shortly after (aka still in 2016)? I would be transferring out of Vanguard to my 401k and then setting up a new Roth Vanguard with a separate 5500 traditional to Roth conversion.

[jfoxcpacfp]

StatBariumEnema wrote:

Quick additional question about backdoor Roths.

If I transfer my 6k or so that I have in a traditional IRA to my 401k, can I do a new backdoor Roth IRA contribution for 5500 shortly after (aka still in 2016)? I would be transferring out of Vanguard to my 401k and then setting up a new Roth Vanguard with a separate 5500 traditional to Roth conversion.

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The rule is that the balance as of the EOY determines treatment, so as long as you transfer into the 401k before 12/31/16, you will be able to do a tax-free Roth IRA conversion for 2016.