Announcement

Collapse
No announcement yet.

Question about IRA/Roth IRA conversion

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

  • Question about IRA/Roth IRA conversion

    Hi

    So I have an IRA currently opened where I rolled over my old 401ks.  Account is about 2-3 years old now.  Because of some history, I haven't been able to fund a lot of retirement accounts outside of my 401k.  This year I will start contributing to an IRA account.  So I would like to convert the IRA into a Roth IRA.

    To do this, would I just do my newly opened individual account?  or do I have to roll over my other IRA account with my rolled over 401k balance?

    Could I do this for myself and my wife?

     

    Thank you

  • #2
    assuming your income is past the limit, then you will not be able to directly contribute to a rIRA.

    because you have an existing rIRA, the prorata rule will get you when you try and convert.

    the first goal is to see if your 401k will accept the tIRA. or if you can open a solo 401k same idea.

    then roll the entire tIRA over.

    then contribute to a tIRA and backdoor to a rIRA.

    since accounts are individual, these do not affect your wife.

    yes you can do this for her as well.

    you should read the backdoor rIRA posts on this site as well as bogleheads.org.

    be prepared for a lot of reading, in the end its not too difficult though. so dont be discouraged!

    Comment


    • #3
      Your and your wife's IRAs will be separate - they're *individual* retirement accounts.

      You can have both traditional and Roth IRAs, and can have as many of each of those accounts as you'd like.  You'd likely prefer to have only one.

      You can just open an account at the same institution your Traditional IRA is at and transfer it to Roth by converting it.  This is taxable and can be a big hit if you have a lot in the account.  You will report the conversion as taxable income on your form 1040.  If you know what your rate will be, you can withhold it at conversion or just pay it when you file taxes.

      If you have a 401(k) that allows for incoming rollovers, then you don't necessarily have to convert and pay taxes if you don't want to; you can roll over the Traditional IRA into it

      You don't necessarily have to roll over or convert if you can make direct Roth contributions, though.  If you are doing "backdoor" Roth, in which you make a non-deductible Traditional IRA contribution and then convert it to Roth tax-free a few days later, then you need to have no money in pre-tax IRAs (just IRAs, not 401(k) or 403(b), etc) by the end of the year you do the conversion, or it will be subject to pro-rata taxation.

      Comment


      • #4




        Hi

        So I have an IRA currently opened where I rolled over my old 401ks.  Account is about 2-3 years old now.  Because of some history, I haven’t been able to fund a lot of retirement accounts outside of my 401k.  This year I will start contributing to an IRA account.  So I would like to convert the IRA into a Roth IRA.

        To do this, would I just do my newly opened individual account?  or do I have to roll over my other IRA account with my rolled over 401k balance?

        Could I do this for myself and my wife?

         

        Thank you
        Click to expand...


        When you say that you'll start contributing to an IRA this year, are you referring to a Traditional IRA?  If so, I am presuming this is non-deductible.  Is that true?  If you are indeed talking about doing a backdoor Roth (non-deductible TIRA to Roth) then you'll run into some pro rata problems regardless of what TIRA you put that $5500 ($6500 if 50+) in.  You can convert the $5500 to a Roth, but you'll face tax implications because of the other funds that you have in pre-tax dollars you rolled over from your 401k.  Best move would be to open up a i401k doing some moonlighting and roll all of the Pre-tax dollars into it.  That way you avoid the pro rata rule where you get taxed on Roth conversions if you have balances in TIRA, SEP and SIMPLE plans on Dec 31st.  Then you can contribute your non-deductible $5500 (and your wife can do this too) to your TIRA, convert to a Roth, and then won't face any tax implications on the Form 8606 you have to file next year.  Hope this helps.

        Comment


        • #5




          So I have an IRA currently opened where I rolled over my old 401ks.  Account is about 2-3 years old now.  Because of some history, I haven’t been able to fund a lot of retirement accounts outside of my 401k.  This year I will start contributing to an IRA account.  So I would like to convert the IRA into a Roth IRA.

          To do this, would I just do my newly opened individual account?  or do I have to roll over my other IRA account with my rolled over 401k balance?

          Could I do this for myself and my wife?
          Click to expand...


          I'm going to answer the questions I think you're asking:

          • You convert the current pre-tax IRA into a Roth IRA before 12/31/17

          • You use the new IRA account that you've opened to contribute to your new nondeductible TIRA.

          • You are ready to convert account #2 (the new IRA account) to a backdoor Roth.

          • Your wife can go through the same procedure for her accounts.

          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment


          • #6
            Hi

             

            So as I understand it,  I need to see if I can roll over my IRA into my 401k.  Then I can setup a traditional IRA, non deductible, and do the conversion.

             

            Thank you

            Comment


            • #7
              A traditional IRA is a traditional IRA. Your current IRA should do just fine, if you like your institution (see below), and you can open your Roth IRA there.

              When you make traditional IRA contributions, you don't specify if it's deductible or not...you just put money into it. Then, when you convert it (if you're doing backdoor), don't have any taxes withheld.

              You should select an institution who allows electronic conversions (some still require actual paper with a wet signature) and who allows you to keep a $0 account open (since it will have $0 for all but a few days of the year in between contribution and conversion). Fidelity, Vanguard, and Schwab all do this.

              Comment


              • #8
                Thanks.

                 

                Update: Current 401k plan does not allow me to roll over my IRA balance into it.  I do have a TSP account, just left working for the VA.  My understanding is that I could roll my IRA into that still?

                 

                 

                Comment


                • #9
                  TSP does accept incoming rollovers into the traditional portion, yes. You can use form TSP-60: https://www.tsp.gov/PDF/formspubs/tsp-60.pdf

                  Comment


                  • #10
                    Would I be better off opening up a solo 401k to move that tIRA into (did some 1099 work late last year and this year) or moving everything into the TSP account?

                    Comment


                    • #11
                      A solo 401(k) would cost you recurring annual fees.  TSP is free and has extremely low cost funds.

                      If the C fund, G fund, and S fund meet some appropriate needs for your overall portfolio, then i definitely would consider rolling money from your traditional IRA into the traditional portion of your TSP.  I'm just not certain that you can do it if you already ended your employment with the VA.

                      Comment


                      • #12




                        A solo 401(k) would cost you recurring annual fees.  TSP is free and has extremely low cost funds.

                        If the C fund, G fund, and S fund meet some appropriate needs for your overall portfolio, then i definitely would consider rolling money from your traditional IRA into the traditional portion of your TSP.  I’m just not certain that you can do it if you already ended your employment with the VA.
                        Click to expand...


                        What, no I Fund? That's one of the more advantageous ones to hold, since international funds tend to have higher fees than 500 or extended market indices.

                        Yes, they do appear to take incoming rollovers after separating from government service: https://www.tsp.gov/LifeEvents/career/seperatingFromGovService.html

                        Comment


                        • #13
                          Yes.  They will accept rollover funds is what I'm told.  I just can't continue to make contributions from my current employer.

                          I started the process of rolling over my tIRA into my TSP account.

                          Only issue I got now, is that my wife has a traditional IRA as well.  Much smaller amount, ~15k.  She is currently working as an independent contractor.  She could setup a 401k or potentially just take the tax hit and convert it all into her Roth IRA?  Last year we were in the 33% marginal tax bracket.  Moving to a state without income tax in a few weeks.

                           

                           

                          Comment


                          • #14
                            If she is an IC, she should probably have an individual 401(k) anyway, to which she can make both employee and employer contributions.

                            Remember that IRAs are *individual* retirement arrangements. Her having TIRA money does not cause pro rata taxation of your Roth conversions.

                            If you want to make backdoor Roth contributions/conversions for her, too, then you need to choose an individual 401(k) custodian which allows incoming rollovers. Vanguard doesn't; Fidelity and Schwab do.

                            Comment


                            • #15
                              Thanks.  Right now her income isn't much ( Less than $5k total over 3 months....).  Just need to decide if its simpler to roll it over and take the tax hit or not versus fees of setting up a solo 401k.

                              Comment

                              Working...
                              X