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  • Rollover IRA, Roth IRA

    I am in the process of transferring my 401K from old employers to a rollover IRA with my current employer with Fidelity

    I also am in the process of transferring my ROth Ira from Primerica to a Vanguard Roth IRA

    I plan to hopefully open an IRA and then convert to a back door Roth so I can continue to contribute to it annually

    What is the best way to proceed?
    Should I continue with my original plan?
    Should I or can I convert the rollover IRA to a backdoor Roth?

  • #2




    I am in the process of transferring my 401K from old employers to a rollover IRA with my current employer with Fidelity

    I also am in the process of transferring my ROth Ira from Primerica to a Vanguard Roth IRA

    I plan to hopefully open an IRA and then convert to a back door Roth so I can continue to contribute to it annually

    What is the best way to proceed?
    Should I continue with my original plan?
    Should I or can I convert the rollover IRA to a backdoor Roth?
    Click to expand...


    If you want to do a backdoor Roth IRA, then you should *absolutely not* have a pre-tax Rollover IRA (such as to roll a 401(k) into).  That will ruin the conversion process by introducing pro rata taxation.  You have to have $0 on pre-tax IRAs on 12/31 of the year of conversion for it to work properly or end up getting double-taxed on the conversion.

    A pre-tax IRAs such as rollover IRAs are not "backdoor" converted to Roth; it's just plain converted.  "Backdoor" specifically refers to making a non-deducted traditional IRA contribution and converting it to Roth.

    Are you sure you're using the proper terminology?  What is "a rollover IRA with my current employer?"  IRAs aren't attached to employers.  If you are rolling an old 401(k) to a different 401(k), then that is fine because IRAs and 401(k)s have nothing to do with one another.

    Vanguard's process is very easy - a few clicks for "backdoor" Roth - and they allow you to keep $0 in the traditional account just to use it for a temporary conduit for your backdoor contributions pending conversion a few days later.

    Comment


    • #3
      DMFA

      To clarify

      I did a rollover of my old 401k to a rollover IRA with Fidelity, not meaning it is associated with my employer

      Comment


      • #4
        Then you've kinda blocked the road to do a backdoor Roth, since you now have pre-tax IRAs which will cause conversion of the non-deducted "backdoor" contribution to be taxed, making it not worth it. You'd have been better off leaving that as a 401(k) in that instance.

        If you want to do a "backdoor" Roth, then you either need to rollover the pretax IRA into another 401(k) - an independent 401(k), which you can do if you have 1099 self-employment income, or your current employer 401(k) - or you can convert it to Roth and pay taxes on it (adds to your income on Form 1040).

        Comment


        • #5
          You need to do one of the following:

          • Convert your pretax TIRA to a Roth,

          • Roll it into your current employer's 401k/403b, or

          • Find a way to earn some IC income, set up a SOLO-k, and convert your pretax TIRA into that.


          Otherwise, as DMFA told you, you'll fall under the pro-rata rule for backdoor Roths.

          You have to move the TIRA by 12/31/17. If you can accomplish this, you can complete the backdoor Roth maneuver at any time in 2017. Whether or not you move your TIRA, you can go ahead and contribute to the nondeductible TIRA at any time. Only step 2 (the Roth conversion) has tax consequences. iow, you should never miss a nondeductible TIRA contribution, even if you have to wait a year or 2 to convert the balance to a Roth. You have until 4/18 to contribute for 2016. This post may help: Explaining Backdoor Roth IRAs.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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