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Backdoor Roth with Prevous non deductible IRA contributions

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  • Backdoor Roth with Prevous non deductible IRA contributions

    Hello all,

     

    Been a long time fan...first time poster.

    I have been trying to figure out how to contribute to a Backdoor Roth with my current parameters.  My wife and I have contributed to non deductible IRAs when we first started working that has grown from approx. 15 k to 30k.  My wife currently has a Rollover IRA and I have a defined contribution pension plan for my orthodontic office.

    I would like to start contributing to backdoor roth but can't find a place for my non deductible IRA contribution.  I know I have to move my wife's previous rollover IRA to her current work 401k or another place.  I don't think I can move my non deductible IRA to my pension plan because I have alreadly paid taxes on the contribution.

    Should I just bite the bullet and pay the tax on these non deductible IRA (tax on just the gains since I paid on the principle) and move my wife's rollover and contribute to a back door roth.  Or is there another avenue that I am missing.
    Thanks

    Gabe

  • #2
    The non-deductible portion can be left in the IRA while the gains are transferred to a 401k (if you have one).  Make sure an 8606 was filled out for the prior years' non-deductible contributions.  Then you can convert to a Roth using the non-deductible amounts only and pay no tax.  Please correct if something is off here folks as I have read about this but have never actually done a backdoor Roth yet.

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    • #3
      If I'm reading right your wife has a rollover IRA plus a non-deductible IRA whereas you have only a non-deductible IRA.

      If your wife's employee plan allow it you can do a "roll in" to her 401k, you would want to roll in the rollover IRA (that should be pre-tax contributions) and you can roll any gain from the non-deductible as that is also pre-tax. Whatever is remaining then your do the backdoor ROTH, depending on the timing you may still have some excess gains to spend but should be really minor.

      I did the same thing last year. The only trick is that due to timing and if you have holdings then you won't exactly be able to get the amounts exactly right, it's better to under contribute into the 401k then over. If you do over then essentially you're actually putting in after tax money into your 401k that you will pay taxes yet again on the withdraw so don't want to do that.

      For your account you need to see if your plan allows the same thing. Not all plans do, you need to confirm with your administrator. If not I have heard that you might have luck opening a solo-401k at Fideity which allows roll-in.

      Also depending on what is your marginal tax bracket you might just pay the tax now and not go through all the gymnastics.

      It's actually really hard to predict where the tax rates are going to especially with the new administration.

      Good luck!

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