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Guide to backdoor Roth IRAs

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  • #16


    One does not have to precede the other this year, but I don’t think you can do SEP and 401(k) contributions in the same year – check my work on that.
    Click to expand...


    You can do them in the same calendar year, just not the same reporting year. For example -

    • You have until 10/15/17 to contribute to a SEP for 2016 but

    • You can open and contribute to a SOLO-k on 1/2/17 for the year 2017


    This would allow you to roll the SEP into the SOLO before 12/31/17 to do the backdoor Roth conversion for 2017. May not be able to do the SEP earlier in the year because your 2016 tax return is on extension for some reason and can't get the total contribution calculated, for instance.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #17





      One does not have to precede the other this year, but I don’t think you can do SEP and 401(k) contributions in the same year – check my work on that. 
      Click to expand…


      You can do them in the same calendar year, just not the same reporting year. For example –

      • You have until 10/15/17 to contribute to a SEP for 2016 but

      • You can open and contribute to a SOLO-k on 1/2/17 for the year 2017


      This would allow you to roll the SEP into the SOLO before 12/31/17 to do the backdoor Roth conversion for 2017. May not be able to do the SEP earlier in the year because your 2016 tax return is on extension for some reason and can’t get the total contribution calculated, for instance.
      Click to expand...


      Thank you!

      Quick question, my wife does not have any IRAs in her name as of 12/31/2016.  Is it too late to do a $5500 backdoor Roth IRA for 2016 for her?  I have not filed my 2016 taxes as of yet.  If its not too late, what steps should I take?  Anything special?

      Comment


      • #18










        One does not have to precede the other this year, but I don’t think you can do SEP and 401(k) contributions in the same year – check my work on that.
        Click to expand…


        You can do them in the same calendar year, just not the same reporting year. For example –

        • You have until 10/15/17 to contribute to a SEP for 2016 but

        • You can open and contribute to a SOLO-k on 1/2/17 for the year 2017


        This would allow you to roll the SEP into the SOLO before 12/31/17 to do the backdoor Roth conversion for 2017. May not be able to do the SEP earlier in the year because your 2016 tax return is on extension for some reason and can’t get the total contribution calculated, for instance.
        Click to expand…


        Thank you!

        Quick question, my wife does not have any IRAs in her name as of 12/31/2016.  Is it too late to do a $5500 backdoor Roth IRA for 2016 for her?  I have not filed my 2016 taxes as of yet.  If its not too late, what steps should I take?  Anything special?
        Click to expand...


        Has she filed hers yet, or are you joint? I imagine joint.

        No, not too late. You'll make her $5,500 non-deductible traditional IRA contribution for 2016 and reflect it on her/your 2016 taxes (should have no effect of tax owed). This only serves to "establish the non-deducted basis" for 2016 via form 8606.

        For her/your 2017 taxes, it will show her $5,500 non-deductible contribution for 2017, and the conversion(s) of both years' contributions totaling $11,000, none of which should be taxed.

        Both years' contributions don't have to be made on the same day or converted at the same time, but you can. Just make sure you specify that you're making a contribution *for* tax year 2016.

        So:

        1. Open her a TIRA (easiest to do at the same institution as her Roth)

        2. Make her $5,500 non-deductible TIRA contribution *for* 2016

        3. File form 8606 for her for 2016 ($5,500 on lines 1,3,4,14 and zero all others, just documents the basis)

        4. Convert the $5,500 non-deductible TIRA money to Roth (don't withhold taxes since there aren't any)

        5. Consider making her 2017 backdoor Roth at the same time (you can convert both at once if you like)

        Comment


        • #19













          One does not have to precede the other this year, but I don’t think you can do SEP and 401(k) contributions in the same year – check my work on that.
          Click to expand…


          You can do them in the same calendar year, just not the same reporting year. For example –

          • You have until 10/15/17 to contribute to a SEP for 2016 but

          • You can open and contribute to a SOLO-k on 1/2/17 for the year 2017


          This would allow you to roll the SEP into the SOLO before 12/31/17 to do the backdoor Roth conversion for 2017. May not be able to do the SEP earlier in the year because your 2016 tax return is on extension for some reason and can’t get the total contribution calculated, for instance.
          Click to expand…


          Thank you!

          Quick question, my wife does not have any IRAs in her name as of 12/31/2016.  Is it too late to do a $5500 backdoor Roth IRA for 2016 for her?  I have not filed my 2016 taxes as of yet.  If its not too late, what steps should I take?  Anything special?
          Click to expand…


          Has she filed hers yet, or are you joint? I imagine joint.

          No, not too late. You’ll make her $5,500 non-deductible traditional IRA contribution for 2016 and reflect it on her/your 2016 taxes (should have no effect of tax owed). This only serves to “establish the non-deducted basis” for 2016 via form 8606.

          For her/your 2017 taxes, it will show her $5,500 non-deductible contribution for 2017, and the conversion(s) of both years’ contributions totaling $11,000, none of which should be taxed.

          Both years’ contributions don’t have to be made on the same day or converted at the same time, but you can. Just make sure you specify that you’re making a contribution *for* tax year 2016.

          So:

          1. Open her a TIRA (easiest to do at the same institution as her Roth)

          2. Make her $5,500 non-deductible TIRA contribution *for* 2016

          3. File form 8606 for her for 2016 ($5,500 on lines 1,3,4,14 and zero all others, just documents the basis)

          4. Convert the $5,500 non-deductible TIRA money to Roth (don’t withhold taxes since there aren’t any)

          5. Consider making her 2017 backdoor Roth at the same time (you can convert both at once if you like)


          Click to expand...


           

          Thank you so much!  Yes, we are married, filing jointly.  Totally forgot all she has is her work 401k and no IRAs!

          Just found this in case anyone is interested (basically spells out what you just told me):  https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/

          Comment


          • #20








            One does not have to precede the other this year, but I don’t think you can do SEP and 401(k) contributions in the same year – check my work on that. 
            Click to expand…


            You can do them in the same calendar year, just not the same reporting year. For example –

            • You have until 10/15/17 to contribute to a SEP for 2016 but

            • You can open and contribute to a SOLO-k on 1/2/17 for the year 2017


            This would allow you to roll the SEP into the SOLO before 12/31/17 to do the backdoor Roth conversion for 2017. May not be able to do the SEP earlier in the year because your 2016 tax return is on extension for some reason and can’t get the total contribution calculated, for instance.
            Click to expand…


            Thank you!

            Quick question, my wife does not have any IRAs in her name as of 12/31/2016.  Is it too late to do a $5500 backdoor Roth IRA for 2016 for her?  I have not filed my 2016 taxes as of yet.  If its not too late, what steps should I take?  Anything special?
            Click to expand...


            @DMFA is spot on. If you want to understand the why of all of this, the article will really help (at least I think it will). Suggest you try it - even references the WCI post you dug up.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #21
              I currently have a traditional IRA which was funded in 2012 and currently worth $12K and a 401K.

               

              I no longer qualify for a tax deductible traditional IRA and wish to do a back door Roth IRA for 2017.

               

              My question is can I keep my traditional IRA which was previously funded and start a new non-tax deductible traditional IRA which I will then do a Roth IRA back door.

               

              The reason I ask is someone said that if you have a previous tax deductible traditional IRA, you have to roll all of that into the new backdoor Roth IRA.

               

              Thank you.

               

               

              Comment


              • #22




                I currently have a traditional IRA which was funded in 2012 and currently worth $12K and a 401K.

                 

                I no longer qualify for a tax deductible traditional IRA and wish to do a back door Roth IRA for 2017.

                 

                My question is can I keep my traditional IRA which was previously funded and start a new non-tax deductible traditional IRA which I will then do a Roth IRA back door.

                 

                The reason I ask is someone said that if you have a previous tax deductible traditional IRA, you have to roll all of that into the new backdoor Roth IRA.

                 

                Thank you.

                 

                 
                Click to expand...


                No, not without it being double-taxed. It doesn't matter if there are different traditional IRAs for deducted and non-deducted.

                When you convert a pretax amount to Roth, the conversion is treated by the IRS as though it's coming equally from all pretax IRA money and accounts, whether it was deducted or not. This is called the "pro rata rule." The way to ensure nothing is double-taxed is to have zero in all pretax IRAs (traditional, SEP, SIMPLE) at end-of-year when the conversion is done; in this instance, 12/31/2017.

                So if you have $12,000 in pretax IRA that you don't convert by end of year, and then you make the $5,500 non-deducted contribution and convert to Roth, then 5500 ÷ (5500+12000) = 31.4% of the conversion will be taxed  despite your already having paid income tax on it That adds $1,729 to your taxable income, meaning it will cost you at least $450 or so to do.

                So, you can convert the whole thing and pay taxes on anything that hasn't been taxed, or roll the pretax money into a non-IRA pretax account like a 401(k) or 403(b). This is in addition to the non-deductible traditional contribution followed by the untaxed Roth conversion.

                Comment


                • #23
                  Hello,

                  Thank you for the informative forum!  I have a question that may have been covered elsewhere, but not sure?

                  1.) How do you calculate the pre-tax portion of a tIRA in order to roll over to a self 401K?

                  I have a tIRA with a blend of approx. 80% pre-tax and 20% non-deductible contributions.  I would like to clean this up in order to perform a Roth conversion by rolling the pre-tax portion of my tIRA into a self-401K, then convert the remaining tIRA (non-deductible portion) to a Roth?

                  I am not sure how to calculate the exact amount of the pre-tax portion in order to roll over to the 401K?

                  Any insight would be greatly appreciated!

                  Thank you!

                   

                   

                  Comment

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