Roth IRA and Traditional IRA in same year

[Frenchy1011]

Quick question for anybody with the knowledge to answer haha:

 

In 2016 I rolled over a 403b Employer contribution from my residency program into a Traditional IRA worth $1900 initially (actually the FA that I will no longer be working with did it haha). I also set up a Roth IRA, and am currently in the process of contributing the max of $5500 into that. Is this ok to do? I read somewhere that between a Traditional IRA and Roth IRA that $5500 contribution is the max into both combined. Or is it ok since that Traditional IRA wasn't my contribution specifically? I just want to make sure it is ok to open a Traditional IRA with $1900 and also contribute $5500 to a Roth IRA in the same year. Thanks for any help!

[spiritrider]

Rollovers and conversions are not consider contributions and have no impact on IRA contribution limits.

[Frenchy1011]

spiritrider wrote:

Rollovers and conversions are not consider contributions and have no impact on IRA contribution limits.

Click to expand...

Great thanks for the response! Appreciate it.

[Peds]

as long as your income qualifies you for direct roth IRA contributions you are fine. rollovers are different. you will want to get rid of that trad IRA for the future probably though.

[DMFA]

Convert your trad to Roth imo. Just pay the little bit of tax.

[RetiredERdoc]

I concur that rolling that money into a roth would be a good idea. You won't be at this low of a tax rate again until retirement, and it opens up the ability to do backdoor roths.

[arnee05]

I have sort of a similar question - figured I'd post here rather than a new thread.

Did a backdoor Roth in Jan 2017 for 2016 tax year. Also did small (~$3000) rollover in 2016 to my tIRA from old 401k and subsequently converted it to Roth money in 2016. tIRA $0 on Jan 1st.

My question is regarding how/where I need to report that rollover money on my 8606, if at all.

Here's what I have:
Line 1: 5500
Line 2: 0
Line 3: 5500
Line 4: 5500
Line 5: 0
Lines 6&7: 0
Line 8: 8500?? - is this the sum of my backdoor (5500) and deductible contribution (3000)?

Line 8 and after are confusing me. I know I'll need a 1040 for the $3000 but can't put it together to make sense.

Thanks.

[DMFA]

arnee05 wrote:

I have sort of a similar question – figured I’d post here rather than a new thread.

Did a backdoor Roth in Jan 2017 for 2016 tax year. Also did small (~$3000) rollover in 2016 to my tIRA from old 401k and subsequently converted it to Roth money in 2016. tIRA $0 on Jan 1st.

My question is regarding how/where I need to report that rollover money on my 8606, if at all.

Here’s what I have:
Line 1: 5500
Line 2: 0
Line 3: 5500
Line 4: 5500
Line 5: 0
Lines 6&7: 0
Line 8: 8500?? – is this the sum of my backdoor (5500) and deductible contribution (3000)?

Line 8 and after are confusing me. I know I’ll need a 1040 for the $3000 but can’t put it together to make sense.

Thanks.

Click to expand...

You rollover'd a $3,000 TIRA to a 401(k) in 2016, and did a $5,500 TIRA to Roth conversion in 2017.  Don't confuse the following:

• IRAs and 401(k)s


• Rollovers, distributions, and conversions


• "for" 2016 (including Jan-Apr 2017) and "in" 2016 (only from 1/1 to 12/31).

You wouldn't even get to line 8 because you had no distributions in 2016 (you had a rollover) and no conversions in 2016 (you converted it in 2017); you'd stop at line 3 and skip straight to line 14.

You'll need to account for the taxable conversion of the 401(k) to Roth IRA, you're right about that.  But most of your 8606 should be blank or zero except for $5,500 on lines 1, 3, and 14.  You still need to file 8606 for the non-deductible contribution, and you'll have $5,500 as a basis for 2016 (see line 14) but no taxes due for it.

This should not result in any taxes on your Backdoor Roths for filing your 2017 taxes next year, since your TIRA value will be zero on 2017-12-31.  This will make $5,500 on lines 1 and 2, $11,000 on lines 3,5,8,9,11,13,16,17, 1.000 on line 10, and zero on lines 4,6,7,12,14 and, most importantly, zero on lines 15 and 18 (the taxable amounts).

...check my work, but after reading 8606 and its instructions, this seems airtight.

[arnee05]

Thanks - that took me a few rounds to make sense of.  So no part of the 8606 do I mention the 401k rollover to TIRA and then conversion to Roth, since it is deductible?  That's goes on a 1040?

[arnee05]

Sorry, one more question - so the line 3 question 'did you make a Roth IRA conversion in 2016?' Technically I did, but it was a deductible contribution (401k-->TIRA-->Roth), right? Or does this Roth IRA conversion question assume non-deductible contributions only?

[DMFA]

Wait a second. I thought you went from a 401(k) to Roth IRA. Why add the extra step?

Still, though, if you did your conversion of your backdoor non-deductible contribution in 2017, then it doesn't go on there, only the amount actually converted in 2016.

So, you should have:

1. 5500


2. 0


3. 5500


4. 5500


5. 0


6. 0


7. 0


8. 3000 (assuming you didn't earn anything while it was in the IRA; this would be taxable on a 1099-R)


9. 3000


10. 0.000


11. 0


12. 0


13. 0


14. 5500


15. 0


16. 3000


17. 0


18. 3000

However, form 8606 is only for your non-deductible contributions. The "zero taxable portion" only refers to the parts that were not made with deducted money (i.e. Your $5500). Line 18 shows the income you owe tax on for your conversion, which is $3,000, which goes on your 1040.

 

Sorry to have confused you earlier. Clear as mud?

[arnee05]

Yah. I'm hindsight, not sure why I did that extra step. This helps, thanks.