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  • traditional IRA on 401K help

    I will be getting married this year - I'm 1099 maxing out my solo401k.
    My fiance is W2 with 401k without match (starting next year).
    Once married she will not qualify for roth IRA contributions so we were looking into backdoor roth - she has multiple accounts from prior employers (401a, DCP, rollover IRA...) in process of consolidating them - hoping to roll them all into her new 401k to keep a 0 balance so she can do roth conversion. Until her 401k starts next year however, for this year can she just contribute 6k to a new traditional IRA? What would be the best strategy to maximize her contributions going forward?

  • #2
    January 2022 have her contribute 6K for 2021 and 2022 each to traditional IRA and then convert. Have traditional IRAs/SEP/SIMPLE down to zero by end of 2022. Conversion is tax free if no earnings

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    • #3
      Contributing to the ira now would lock the money in the account and any gains would be taxed at marginal rates and you couldn't TLH. A taxable account has more advantages in the short term and then do contributions and conversions in Jan 2022.

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      • #4
        got it. aside from balancing tax rate at retirement, any real benefit to doing the backdoor roth conversion instead of keeping it in traditional ira? can't we claim the 6k as a further deduction?

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        • #5
          Originally posted by happydoc90 View Post
          got it. aside from balancing tax rate at retirement, any real benefit to doing the backdoor roth conversion instead of keeping it in traditional ira? can't we claim the 6k as a further deduction?
          most doctors once they hit attendinghood make too much to deduct 6k on their taxes. So even if they elect traditional IRA, its still non deductible, which is what makes the backdoor roth even more appealing

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          • #6
            Originally posted by happydoc90 View Post
            aside from balancing tax rate at retirement, any real benefit to doing the backdoor roth conversion instead of keeping it in traditional ira?
            The tax benefit is the huge part of it. It's basically a choice of pay taxes vs don't pay taxes. The only limiting factor for conversion is there's a 5 year rule for doing withdrawals on conversions. But you shouldn't really be doing non deductible traditional IRA contributions without intention of converting to Roth IRA. Do a taxable account instead.

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            • #7
              To clarify, anybody with earned income is eligible to participate in the backdoor Roth maneuver. One will simply owe pro-rata taxes if you have a pre-tax TIRA in one's name on 12/31 of the calendar year of conversion. Not necessarily a bad thing if one prioritizes moving more money into the tax-free growth space as early in one's career as possible. The suggestion by jhwkr542 is also a good one.
              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                I think I got it - So in retirement when pulling out traditional IRA contributions, since we were unable to tax deduct the contribution (because of high salary) - original amount will not be taxed but any gains will be?
                If instead did the backdoor roth - when pulling out in retirement, no taxes payed even on gains?

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                • #9
                  correct

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                  • #10
                    Originally posted by happydoc90 View Post
                    I think I got it - So in retirement when pulling out traditional IRA contributions, since we were unable to tax deduct the contribution (because of high salary) - original amount will not be taxed but any gains will be?
                    If instead did the backdoor roth - when pulling out in retirement, no taxes payed even on gains?
                    That’s right - and the growth and income w/b taxed at your highest marginal tax bracket. No preferential dividends or LTCG treatment. In that case, you’d be better off with a taxable acct.
                    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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