Announcement

Collapse
No announcement yet.

TIRA to RIRA

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • TIRA to RIRA

    Have traditional IRA with Fidelity with balance 3.7k (long story why). Now I want to make deposit and do backdoor transfer to RothIRA.

    Was told by Fidelity that I can do it but then next year will have to pay tax on 3.7k.

    Should I do it or just open new IRA with Vanguard and do backdoor transfer and leave 3.7 k in traditional IRA at Fidelity ?

  • #2
    is this pre tax of after tax TIRA? And sounds like from another tax year?

    Comment


    • #3
      Money were  transferred to my TIRA account in January 2017

      Comment


      • #4
        Is the TIRA pre-tax or after-tax? That is the key question.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5
          My understanding that it is Pre-tax (it was transferred from my deceased husbands account and it is the same amount that he had). Fidelity representative said that if I will do backdoor transfer I will have to pay tax on this amount. Since it is small $ I may just transfer it + add 6.5k since I am 50yo. What do you think?

          Or should I just talk to Fidelity again?

           

          Comment


          • #6




            My understanding that it is Pre-tax (it was transferred from my deceased husbands account and it is the same amount that he had). Fidelity representative said that if I will do backdoor transfer I will have to pay tax on this amount. Since it is small $ I may just transfer it + add 6.5k since I am 50yo. What do you think?

            Or should I just talk to Fidelity again?

             
            Click to expand...


            If you moved the funds you inherited from your husband to your own IRA then, yes, you can convert them into a Roth IRA and then proceed with the backdoor Roth maneuver (contribute the lesser of earned income or $6,500 to nondeductible TIRA then convert to Roth IRA annually). You will pay tax on the initial $3,700 conversion.

            You cannot convert the IRA you inherited if you did not move it into your own name.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7
              Thank you for response.

              Money (3.7k) now under my name in traditional IRA account with Fidelity

              So next steps are:

              1. Transfer 3.7k into Roth IRA (backdoor transfer)

              2. Wait when traditional IRA account go to 0 and then deposit 6.5k

              3. Wait and do backdoor transfer of 6.5 k to roth IRA account

               

              Correct?

              I did my tax return so 6.5k will be counting toward 2017 and I assume I will have to fill out additional tax forms for 2017 (Fidelity will send  form to pay tax on 3.7 k and I will need to fill out form 8606 for roth IRA)

               

              P.S. Johanna, I am counter playing to contact you and hire as my financial advisor

              You were highly recommended

              Comment


              • #8

                1. This will be a plain old Roth conversion (taxable), not a backdoor transfer (nontaxable).

                2. No need to wait. You can contribute to a nondeductible TIRA at any time with no tax consequences.

                3. As long as the pre-tax TIRA is zero on 12/31 of the year you convert via the back door, you will suffer no tax consequences. iow, you can do a backdoor Roth conversion today and wait until New Year's Eve to convert the $3,700 to a Roth and still be fine (not that I would recommend you do that).


                You still have time to contribute to a 2016 nondeductible TIRA and then you will have 2x as much to convert in 2017.

                Thank you on the P.S. It would be an honor.
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  Johanna you come highly recommended from a friend and many on this forum, I am also considering, like lmk1966.

                  I am trying to understand the deadlines better.

                  I had a pretax TIRA at Betterment that is in the process of Roth conversion (3 weeks) to vanguard. If it is done by 4/15, can I still do backdoor Roth for 2016 (TIRA had a balance on 12/31/16)?

                  Since it takes so long to convert TIRA to RIRA between diff institutions, would you open a new TIRA alongside RIRA for ease of doing backdoor Roth?

                  Would I have to wait to file my taxes till this is done?

                  Thanks much!

                  Comment


                  • #10
                    You can make a 2016 TIRA *contribution,* assuming you have not yet made $5,500 in contributions to IRAs for 2016.

                    When you file form 8606 for 2016, it includes contributions made *for* 2016 (including Jan-Apr 2017, if declared as 2016), but only conversions made *in* 2016. Therefore if you haven't converted anything, there won't be anything to tax. You will have an untaxed TIRA basis for 2016.

                    You can convert all of your TIRA holdings to Roth in 2017. These will be reflected on your 2017 taxes. You should only owe taxes on anything you haven't already paid taxes on (deducted TIRA contributions and any earnings).

                    To avoid pro rata taxation on non-deducted (already-taxed) contributions, ensure the balance in all Traditional, SEP, and SIMPLE IRAs is zero on 12/31 of the year of *conversion,* meaning 12/31/2017, not 2016.

                    Doing a prior year backdoor Roth will result in the prior year's form 8606 showing $5,500 of contributions and no conversions, and the current year (to be filed next year) form 8606 showing $5,500 of contributions and $11,000 of conversions (plus whatever else was already in the TIRA).

                    Clear as mud? I have some examples of fully-filled 8606s in nearly your exact situation on similar threads right now. I'll try to show an example.

                    Comment


                    • #11
                      Found it...

                      • Make a 2016 non-deductible TIRA contribution ($5,500)

                      • Make a 2017 non-deductible TIRA contribution ($5,500)

                      • Convert those two plus the $3,700 in pre-tax IRA to Roth


                      For your Form 8606 in 2016, it will read:

                      • $5,500 on lines 1,3,4,14 (creates a non-deductible basis for 2016; this is OK)

                      • $3,700 on lines 6,9 (trad IRA value at year's end, per form 5498 box 5 your custodian provided you)

                      • $0 on lines 2,5,7,8,11,12,13,15,16,17,18 (nothing converted in or taxable for 2016)

                      • 0.000 on line 10


                      For your Form 8606 in 2017, it will read:

                      • $5,500 on lines 1,2

                      • $11,000 on lines 3,5,11,13,17

                      • $0 on lines 4,6,7,12,14,15 (the basis is eliminated)

                      • $14,700 on line 8,9,16 (or $11,000 plus trad IRA value at conversion)

                      • 0.748 on line 10 (line 5 div by line 9)

                      • $3,700 on line 18 (the taxable amount to add to your 1040 as income, equal to the trad IRA value at conversion)


                      There would be no tax on the non-deductible portion, and the only tax due would be on the pre-tax value (as it should be), if you eliminate all pre-tax IRAs for 2017 taxes by 12/31/2017.

                      Comment


                      • #12




                        I am trying to understand the deadlines better.

                        I had a pretax TIRA at Betterment that is in the process of Roth conversion (3 weeks) to vanguard. If it is done by 4/15, can I still do backdoor Roth for 2016 (TIRA had a balance on 12/31/16)?

                        Since it takes so long to convert TIRA to RIRA between diff institutions, would you open a new TIRA alongside RIRA for ease of doing backdoor Roth?

                        Would I have to wait to file my taxes till this is done?
                        Click to expand...


                        This is so confusing to so many that I've decided to feature it in our next newsletter (comes out the middle of the month). We'll also post it on our blog and I'll link here.

                        I'm going to give you the basic rules - lmk where you need help figuring out the answers to your questions:

                        • Anyone with earned income can contribute to a TIRA. Whether you can deduct your contribution is based upon your MAGI and your/your spouse's participation in employer retirement plans. After graduation from training, probably 99% of doctors qualify to contribute to nondeductible TIRAs only.

                        • Contributions to TIRAs are considered made on a "tax year" basis, i.e. can be counted up to the due date of filing your tax return (extensions do not count). That date is 4/18/17 this year.

                        • Any funds in a TIRA can be converted to a Roth IRA. If you convert a TIRA that you have not deducted, that is called a "backdoor Roth conversion".

                        • Backdoor Roth conversions are made and reported on a calendar year basis only. Therefore, conversions after 12/31/16 are reported on a form 8606 for 2017.

                        • The pro-rata rule: If you have money in a pre-tax TIRA account on 12/31 of the calendar year that you make the backdoor Roth conversion, you will owe income tax under the pro-rata rule. 12/31 is the only day of the year that matters. That means you can do a backdoor conversion today and have a pre-tax TIRA in your name all year long until 12/31/17, at which point you roll it into your 401k at work (I wouldn't recommend waiting that long) and you will owe no taxes under the pro-rata rule.

                        • These transactions are reported on form 8606. MAKE SURE your CPA knows to file one for every year you engage in one or both.

                        • (I am not going to discuss the pro-rata calculation as you can easily google it).

                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13
                          Yesterday I transferred 3.7 k from Traditional IRA to Roth IRA for year 2016  (3.7k were inherited from my deceased husband account and deposited to my traditional IRA on01/1//17)

                          Currently moving 6.5k (I am 50 yo) from bank of America to my traditional IRA and will convert to Roth IRA soon (for 2016)

                          Later will do the same for 2017

                           

                          My understanding that I have to file form 8606 for 2016 even that I already filed my tax

                          Can you look attachment and see if it makes sense?

                          Thank you

                          Comment


                          • #14
                            Sorry to cross threads. If you did not have that inherited $3700 in TIRA money until this year, then it should not be reflected on the 2016 form 8606 since your TIRA balance on 12/31/2016 was $0. Only the "late" contribution should be reflected on there.

                            Comment


                            • #15
                              When do I report 3.7k ? (inherited from my husband account and deposited to my TIRA on 1/10/17)

                              I converted it to Roth IRA for 2016 on 3/10/17

                               

                              Comment

                              Working...
                              X