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Question about IRA/Roth IRA conversion

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  • lmbebo
    replied
    Update / Question:

     

    So I've started the roll over to my TSP account (slow because of TSP).  Anyways, So I have like $50 left over for some reason in my tIRA at Ameritrade.

     

    Should I open a Roth IRA at ameritrade and just roll over the 5500 into that?  Or should I open at the Roth IRA at Vanguard? and transfer the $50 to that?

     

    Leave a comment:


  • DMFA
    replied
    Yeah, that's the tough question to ask yourself.

    Be careful with your terminology. "Rollover" refers to moving funds from one qualified retirement account to another, like trad IRA to 401(k) , 403(b) to trad IRA, etc. That's pretax to pretax, no tax due. "Conversion" is pretax to Roth and is taxable.

    Your option for the traditional (pretax) IRA is either rollover (pretax) *or* convert (Roth, post-tax).

    Leave a comment:


  • lmbebo
    replied
    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.

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  • DMFA
    replied
    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.

    Leave a comment:


  • lmbebo
    replied
    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.

     

     

    Leave a comment:


  • DMFA
    replied




    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

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  • Hank
    replied
    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.

    Leave a comment:


  • lmbebo
    replied
    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?

    Leave a comment:


  • DMFA
    replied
    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

    Leave a comment:


  • lmbebo
    replied
    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?

     

     

    Leave a comment:


  • DMFA
    replied
    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.

    Leave a comment:


  • lmbebo
    replied
    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

    Leave a comment:


  • jfoxcpacfp
    replied




    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.

    Leave a comment:


  • ENT Doc
    replied




    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.

    Leave a comment:


  • DMFA
    replied
    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.

    Leave a comment:

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