Backdoor Roth

[cathy2934]

Hi All. I read the https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/  but still have some questions.

Background:

1. I would like to put money in a roth for me and my husband

2. I would however also like to file taxes for 2016 separately as I am going for the public service loan forgiveness

3. I have a TSP ( not sure how this affects having "0" in a traditional IRA.

Above is what I would like to accomplish for the year 2016. I am not sure if it is too late (I know I could still if not filing separate put 5500 in ROTH till april)

In short I am not sure if I still can or even how to do the backdoor which I think given the above is the only way to put money in my roth.

[Winkleweizen]

I think the deadline was dec 31st

[spiritrider]

1. On this date, you can make your non-deductible traditional IRA contributions for 2016 and/or 2017, subject to earned income, previous contributions and limits. The ability of your spouse to also make a contribution when filing separately is dependent on them having their own sufficient earned income. A spousal IRA contribution using your income is only allowed when married filing jointly.

2. While you can still make 2016 IRA contributions up until your tax filing deadline, Roth conversions are strictly limited to calendar year. So any Roth conversion at this point will be for the 2017 tax year.

3. The TSP is a 401k and its assets have no effect on any traditional IRA -> Roth IRA conversion.

[cathy2934]

Thus are you saying if I put money today into a traditional IRA and converted it tomorrow into a Roth IRA than that would and could only be the Roth contribution for 2017, or does the money into the traditional IRA (go on my 2017 taxes) and I can still convert to a Roth tomorrow and have it count toward 2016 contributions?

[conniebird]

You can still contribute for 2016 and obviously do 2017.

[nachos31]

Yes, you can contribute still for 2016 to a backdoor Roth IRA.

As you have said, you will have to do the backdoor Roth IRA since you're doing MFS (unless somehow your income is <$10,000 then you can do a direct Roth contribution, but then putting >50% into a Roth IRA may be a struggle).

Note the distinction between contributing and converting as this is often what trips people up.

You can contribute the full amount to a traditional (non-deductible--i.e. after tax money) IRA any time during that tax year (eg. 2016) up through the filing date for that tax year (eg, April 17th, 2017). So for a given tax year, you have 15.5 months to contribute to an IRA.

Any converting of trad IRAs to a Roths is reported on the taxes in the calendar year the conversion takes place, like spiritrider said above.

For example, tomorrow you could contribute $5500 for 2016 and $5500 for 2017 to a trad IRA and the next day convert the entire amount to Roth. On your 2016 taxes, you'd fill out a Form 8606 showing only the 2016 contribution (establishing the 2016 trad IRA basis). On your 2017 taxes, you'd fill out Form 8606 showing the 2017 contribution as well as the Roth conversion of the entire amount for both years (because the conversion took place in 2017 for both years' worth of contributions).

Does that answer your question?

[jfoxcpacfp]

cathy2934 wrote:

1. I would like to put money in a roth for me and my husband

2. I would however also like to file taxes for 2016 separately as I am going for the public service loan forgiveness

3. I have a TSP ( not sure how this affects having “0” in a traditional IRA.

Above is what I would like to accomplish for the year 2016. I am not sure if it is too late (I know I could still if not filing separate put 5500 in ROTH till april)

In short I am not sure if I still can or even how to do the backdoor which I think given the above is the only way to put money in my roth.

Click to expand...

Abbreviated all-inclusive version:-):

1. Employer accounts, such as TSP or 401k, have no bearing on the ability to contribute to personal accounts, such as IRAs.


2. No matter how you file, MFS or Joint, you can always contribute to a nondeductible TIRA as long as

•    you have at least $5,500 earned income (including alimony) and


•    all IRA contributions for an individual do not exceed $5,500 in a "tax year" (see no. 3)

3.  Roth IRA contributions are accounted for by the IRS on a "tax year" basis, meaning you have until the due date of filing    your return to make the associated IRA contribution.

4.   Roth IRA conversions are accounted for by the IRS on a "calendar year" basis, meaning you must convert by 12/31 of the year for which you want to report the conversion.

Maybe not so abbreviated ops:  but now you should be able to figure it all out on your own.

[cathy2934]

Thank you to everyone all the comments are super helpful.
Last question on this topic I believe:

Lets say I did this as noted in a comment example above:

For example, tomorrow you could contribute $5500 for 2016 and $5500 for 2017 to a trad IRA and the next day convert the entire amount to Roth. On your 2016 taxes, you’d fill out a Form 8606 showing only the 2016 contribution (establishing the 2016 trad IRA basis). On your 2017 taxes, you’d fill out Form 8606 showing the 2017 contribution as well as the Roth conversion of the entire amount for both years (because the conversion took place in 2017 for both years’ worth of contributions).

Is there then a penalty (extra taxes, etc) for converting over 5500 all in one year- 2017 (as this way I would have to convert 11000 to roth in one year to not hit pro rata)?

Ok I was wrong second question:

What is meant by "deductible" tIRA? (is it one I pay taxes on now I assume?)

[jfoxcpacfp]

cathy2934 wrote:

Is there then a penalty (extra taxes, etc) for converting over 5500 all in one year- 2017 (as this way I would have to convert 11000 to roth in one year to not hit pro rata)?

Click to expand...

No. You can convert to a Roth IRA any time. Usually, the amount you convert depends upon how much income you are willing to be taxed upon. However, since you are converting a nondeductible IRA, you will owe no tax because you already have "basis" as you already understand. There are 2 instances in which you will owe tax on a back-door Roth conversion:

1. If you have any pre-tax (already deducted) IRAs in your name, and


2. If the nondeductible contribution investments have grown in value and/or paid dividends or capital gains distributions since you first contributed. Don't count any amounts under $1.

cathy2934 wrote:

What is meant by “deductible” tIRA? (is it one I pay taxes on now I assume?)

Click to expand...

A deductible TIRA is a Traditional IRA (as opposed to a Roth IRA) for which you have deducted all or part of on your income tax return in the "tax year" of contribution. When your income is low (such as in med school and, to a lesser extent, in residency/fellowship) or when neither you nor your spouse has a qualified plan available at your employer, then your contribution is deductible?

[cozmopak]

Additional question about backdoor Roth: I have a 401k through my current employer and a 403b through my former residency.  Do either of these disqualify me from opening a backdoor Roth?  And if I rollover my 403b into my 401k, would this transaction disqualify me for the year?

[nachos31]

Cozmo, neither the 401k nor the 403b disqualify you. A better way to put it is that neither puts you at risk for violating the pro-rata rule and potentially owing taxes. Furthermore, rolling the 403b into the 401k also does not affect this.

[jfoxcpacfp]

cozmopak wrote:

Additional question about backdoor Roth: I have a 401k through my current employer and a 403b through my former residency.  Do either of these disqualify me from opening a backdoor Roth?  And if I rollover my 403b into my 401k, would this transaction disqualify me for the year?

Click to expand...

See #1 in response #32932 above. 401k and 403b are employer accounts that have no bearing on the taxability of your back-door conversion.

Nobody is disqualified from converting to a Roth IRA, whether traditional or back-door, as long as they have the appropriate account(s) to convert (TIRA, 401k, 403b, etc.) The issue is whether the conversion is taxed or not.

[jfoxcpacfp]

Cl3333 wrote:

I currently have $90,000 that I rolled over from an old 403b to a Citibank account. Is that considered a roll over ira and can I not start a backdoor ira because of this?

Click to expand...

Not sure what you mean by "Citibank account" - could you clarify? Is it a TIRA? If it is, i.e. if you will pay no taxes on the r/o, then, no, you cannot do a tax-free back-door Roth conversion from a non-deductible TIRA account.

[jfoxcpacfp]

Cl3333 wrote:

Thank you for your response. It was rolled over without any taxes paid and it is a roll over IRA.

Click to expand...

Assuming you did the r/o in 2016, you will receive a 1099-R for your tax filing and the amount reported will be taxable income on your 2016 tax return. This will prohibit you from having a tax-free back-door Roth conversion.

If you did the r/o after 12/31/16, you will not have to report this income until you file your 2017 income tax return and you can do a tax-free back-door Roth for 2016.

[ENT Doc]

Questions for the group:

 

My situation is such that during residency I was required to put a certain amount of money into a retirement fund that was matched by the institution.  When I left that institution I converted all of that into a traditional IRA.  I believe this was all pre-tax money.  Following this, for the last several years (2016 included) I have put $5,500 of post-tax money into the same traditional IRA held with Vanguard.  As this was post-tax money I was hoping to capitalize on the tax-free growth benefits and was maximizing my contributions to other retirement accounts.  I didn't know anything about the backdoor Roth - until now.

Does having this traditional IRA money prevent me from doing this backdoor Roth conversion?
If I'm able to still do the Roth conversion without incurring a tax penalty can I do this for 2016 and 2017?

Thank you!