#1) Yes, we contributed before April 2017 for 2016. So wondering what the optimum timing for the contribution for 2017 would be. And what the optimum timing for the conversion also. Should we do the conversion twice? As in, do it now for the 2016 funds, contribute for 2017 and do another conversion? Or just contribute to 2017 and do one conversion for all?
#2) Makes sense, that is why I will open a Roth IRA at fidelity in my account today. When we do the conversion for my wife, we would just transfer the funds to the pre-existing Roth IRA right?
#3) ASAP? Just for clarification, my $5500 in my traditional IRA account grew ~ 22% via the Contrafund. I know if I do the backdoor Roth, I will be taxed on the gains, but I still feel as though the Roth conversion will be beneficial in retirement for me.
Am I making this harder than it should be?
Thanks for your help!
I am making the assumption that you can't deduct your Traditional IRA contributions since you should have an employer account.
1. Contribute whenever you have $5,500 to do so. Convert right after contributing. It doesn't matter if you convert them sequentially or together. Why wait, other than market timing (which is generally ill-advised)? You should convert right after you contribute: that way, there are zero gains to be taxed. Leave it in the sweep account (SPAXX or whatever cash/money market fund) until it's in the Roth, then buy holdings with it after it's converted.
2. Yes, you'd transfer from the Traditional to the pre-existing Roth. You don't need to create a new Roth for this, and shouldn't need to create a new Traditional for your next conversion. One Roth, one Traditional (which will have $0 in it for like 51 weeks out of the year) per person.
3. So you want to wait until it grows more so that more of it is taxable? If you're in the top bracket now, you'd owe about $480 in taxes. If you'd converted the next day after your contribution, you'd probably owe zero. If you convert in 20 years after 5% growth in the 25% bracket, you'd owe about $3,648 in taxes. If you can't deduct your contributions, there's no point in doing tax-deferred instead of tax-free growth. Maybe you could wait until there's a bear market to do your conversion so that you have less gains to be taxed, which is not unreasonable...you've got to wonder how long the market could be at these all-time highs. Anyway, a $480 tax bill on a Roth conversion is peanuts.
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