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Deductible IRA to backdoor Roth IRA conversion.

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  • Deductible IRA to backdoor Roth IRA conversion.

    My wife has a deductible traditional IRA to such she has not contributed since opening it initially in 2003. She took deduction back then on her taxes. She invested $3000 initially. That has now grown to $6700. $3700 is the gain. She wants to contribute $6000 for tax year 2019 and then convert the entire amount ($12,700) to a Roth IRA. The conversion and contribution (of $6k for 2019) might happen in Jan 2020 not before 12/31/2019) Is there anything we need to take care of while filling up the form 8606 for 2019? I know we will have to pay taxes since this is deductible IRA and there were gains.

    If anyone can walk through the form 8606 in her scenario that would be really appreciated as the total IRA the amount as of 12/31/2019 in her case will not be zero.

    TIA,
    ANPrinceton

  • #2
    how about you walk through the form, then post the completed form and we'll tell you if it's right
    it's not that hard, it even has instructions
    I can do it, and I went to a state school

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    • #3
      A strong second to jacoavlu‘s suggestion.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thank you. I did try filling it up myself couple of times. Made sense. I will try to post something here for review.

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        • #5
          Originally posted by ANPrinceton View Post
          My wife has a deductible traditional IRA to such she has not contributed since opening it initially in 2003. She took deduction back then on her taxes. She invested $3000 initially. That has now grown to $6700. $3700 is the gain. She wants to contribute $6000 for tax year 2019 and then convert the entire amount ($12,700) to a Roth IRA. The conversion and contribution (of $6k for 2019) might happen in Jan 2020 not before 12/31/2019) Is there anything we need to take care of while filling up the form 8606 for 2019? I know we will have to pay taxes since this is deductible IRA and there were gains.

          If anyone can walk through the form 8606 in her scenario that would be really appreciated as the total IRA the amount as of 12/31/2019 in her case will not be zero.

          TIA,
          ANPrinceton
          first off...can/should she move it to a work plan?
          second off....yes read 8606. its for non-deductible contributions.
          third off.....you should contribute 6K for 2019, and 6K for 2020 both in 2020, and then convert both in 2020.
          forth off.....2019 really doesnt matter (as its basically over). what will her tIRA balance be at the end of 2020....

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          • #6
            Thank you.

            i have just contributed deductible $6000 for 2019 to her traditional IRA account at vanguard and in the process of transferring her $6700 deductible IRA to vanguard into the same account which may not happen this year. May be in 2 weeks or so. After which the total in this account will be $12,700. plan is to add another $6000 for 2020 and then convert the total of $18,700 into a Roth IRA and keep the traditional account to 0.

            After the transfer the 2 types of money (deductible and non deductible) will be in the same account not sure if I can rollover the partial account at this point to her employer, if her employer accepts it. Rather I might just take the hit now and start it clean. I should have thought about the employer transfer earlier. Lesson learnt.

            thank you again!
            ANPrinceton

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            • #7
              keep the money separate, don’t consolidate

              in 2020 make the $6k contribution then convert the $12k balance plus earnings to Roth

              in 2020 also rollover the existing pretax IRA to workplace plan

              this is easier if accounts are separate

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              • #8
                Thank you and Agreed. It would be easier if the pre-tax and post-tax money was in separate accounts.

                Unfortunately, I have taken steps to consolidate both in same account with the thought of paying taxes on the pre-tax one and starting the Roth conversion cycle without thinking of the merging the pre-tax account into her employer. The thought didn’t come to my mind as her employer only offered Roth 401 k until this year and the pre tax 401 K offering at her workplace starts in 2020.

                She will have to ask we don’t know for sure yet. I did ask for mine and they said no but my situation was different. I have a non-deductible IRA with $3k in contribution and another ~ $2k in gain. I will take the hit for the 2019 tax year and for her it will be the 2020 tax year. But the plan is to start backdoor Roth conversion with contributions for 2019 and 2020 sooner.

                I have learnt tremendously about the process in last few days from resources like this and I am still learning.

                Thank you again!
                ANPrinceton

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