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Roth IRA Limits??

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  • Roth IRA Limits??

    I was just curious if anyone knew whether or not "low" earners could both "contribute" to the 6k annual Roth IRA limit AND "convert" another 6k into a Roth IRA (aka for a total of 12k). The wording on the IRA websites mentions 6k limits on contributions and conversions but does not mention if both can be done. Or is it simply a limit of 6k into a Roth IRA between both any direct contributions/conversions?

    Thanks for any input!

  • #2
    You can’t do both. The limit is combined.

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    • #3
      The amount you can convert into a Roth in any one year is limited only by the balances in the accounts which are available for conversion. Conversions and contributions have no direct relationship other than that.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Originally posted by brokeradiologist View Post
        I was just curious if anyone knew whether or not "low" earners could both "contribute" to the 6k annual Roth IRA limit AND "convert" another 6k into a Roth IRA (aka for a total of 12k). The wording on the IRA websites mentions 6k limits on contributions and conversions but does not mention if both can be done. Or is it simply a limit of 6k into a Roth IRA between both any direct contributions/conversions?

        Thanks for any input!
        If you qualify you can contribute 6K ( or 7K if over age 50) directly into Roth IRA.

        If you are over the income limit you do backdoor - contribute to traditional IRA and quickly convert to Roth before its value increases. You have to pay the income taxes on the 6K you contributed to traditional IRA.

        You can't do both in the same year. One or the other based on your income qualification.

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        • #5
          To provide additional clarification. It is an IRA contribution limit and not a rollover limit.

          This means there is one combined contribution limit for all deductible traditional IRA contributions, non-deductible traditional IRA contributions and direct Roth IRA contributions.

          Bottom line: If you have maximized your IRA contribution limit with non-deductible traditional IRA contributions for the BDR, you can not make any further traditional IRA and/or Roth IRA contributions.

          As pointed out by jfoxcpacfp, There is no limit on the number or amount of Roth conversions up to the traditional IRA account balances.

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          • #6
            Originally posted by Kamban View Post

            If you qualify you can contribute 6K ( or 7K if over age 50) directly into Roth IRA.

            If you are over the income limit you do backdoor - contribute to traditional IRA and quickly convert to Roth before its value increases. You have to pay the income taxes on the 6K you contributed to traditional IRA.

            You can't do both in the same year. One or the other based on your income qualification.
            I am not sure the above fact is correct, as you contribute to the tIRA with your post tax money. Why do you have to pay tax twice?

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            • #7
              Originally posted by FireFox View Post
              I am not sure the above fact is correct, as you contribute to the tIRA with your post tax money. Why do you have to pay tax twice?
              I think he is just referring to the fact that it is taxable money. So he is saying you have to pay tax once on contributions(as opposed to zero times).

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              • #8
                Originally posted by FireFox View Post
                I am not sure the above fact is correct, as you contribute to the tIRA with your post tax money. Why do you have to pay tax twice?
                You’re both saying the same thing. It’s post tax money, which is what Kamban is referring to when he says you’ve already paid income tax on that contribution.

                OP: you can convert as much as you want (for example if you have 50k sitting in a tIRA from years past). You can’t contribute more than 6k per person total across all IRAs.

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                • #9
                  I think what Kamban is trying to say is that the TIRA contribution in the case of the back door Roth is after-tax money that is not tax-deductible on the tax return. But it’s clear, for any single tax year (up to the filing date) the maximum that can be contributed to a TIRA and/or Roth is $6000 combined ($7000 if over 50).

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                  • #10
                    Originally posted by FireFox View Post
                    I am not sure the above fact is correct, as you contribute to the tIRA with your post tax money. Why do you have to pay tax twice?
                    As others have said, you either pay taxes and contribute or you put in the$ 6 or 7K and pay taxes on it on April 15th, the more common scenario.

                    With direct Roth you pay taxes and do it directly. With tIRA you have to do the conversion quickly so that the 6K does not become 6.1K sitting around in the tIRA account.

                    In the old days when there was no Roth people used to contribute to deductible traditional IRA. You contributed 2 or 3K ( limits on those days) and if your earning was low enough you did not pay taxes on it. But then later in life you are hit with ordinary income taxes on that 3K and its earnings. I have done that as well as the tIRA where I have paid taxes and now I get to deduct that amount but have to pay a tax on its earnings.

                    It became so complicated that last year I just decided to convert all to Roth, whatever be the tax rate. Because of my investments that distribute earning as ordinary income and the spigot cannot be turned off for one year to get into a low income tax bracket in retirement and do the Roth conversion, I bit the bullet now. Also, the sooner I do it the longer my investments will grow tax free.

                    Tax strategy is too complicated and unpredictable and depends on the whims of each POTUS and his coterie.

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