IRA Question

[countryphysician]

I have had a traditional IRA with about $40K in it. This year I have contributed an additional $1600 thus far. I plan on transferring all of that money into a solo 401K in the next few days in order to do a backdoor Roth IRA in early January.

 

Steps I have taken:

1. Deposited $1600 throughout the year to a larger IRA

2. Transferring all money now to a solo 401K

 

On January 1st, 2018 I have a conundrum

Will I only be able to backdoor $3900 (5500-1600) given that I already contributed $1600 to the IRA during the year?

Or will I have to deposit $3900 into the traditional IRA and transfer another $1600 back out of the solo 401K into the traditional IRA?

 

On January 2nd, 2018 I am hoping to be able to transfer $5500 into a Roth IRA

 

 

 

[DMFA]

countryphysician wrote:

I have had a traditional IRA with about $40K in it. This year I have contributed an additional $1600 thus far. I plan on transferring all of that money into a solo 401K in the next few days in order to do a backdoor Roth IRA in early January.

 

Steps I have taken:

1. Deposited $1600 throughout the year to a larger IRA

2. Transferring all money now to a solo 401K

 

On January 1st, 2018 I have a conundrum

Will I only be able to backdoor $3900 (5500-1600) given that I already contributed $1600 to the IRA during the year?

Or will I have to deposit $3900 into the traditional IRA and transfer another $1600 back out of the solo 401K into the traditional IRA?

 

On January 2nd, 2018 I am hoping to be able to transfer $5500 into a Roth IRA

 

 

 

Click to expand...

The balance for backdoor Roth matters at the end of the year.  So, if you want to contribute another $3,900 for 2017, you can do it anytime, even now if you want.  Just don't deduct any of your traditional IRA contributions this year.  You'll pay tax on everything you converted that you either deducted or that was gained on your principal.  That $40,000 might be a bit of a tax bomb, though.

Once the new year comes along, you can make another $5,500 contribution for 2018 as well.

[Faithful Steward]

Assuming you roll your Traditional IRA into the Solo 401(k) prior to year-end; in 2018, you can make the balance of your 2017 $3,900 non-deductible contribution to a new Traditional IRA (as well as your full $5,500 contribution for 2018) and then do the Backdoor Roth as soon afterward as you are comfortable with given the step transaction rules of the IRS.

[countryphysician]

So I made a mistake by sending that $1600 (which I have already paid taxes on) to the solo 401k because it it stuck there now? Because now for 2017, I can only backdoor Roth $3900?

[spiritrider]

Actually, it is not permitted to rollover anything but pre-tax assets from an IRA into a non-IRA retirement plan.

If you already did this you probably missed a certification that you signed on the documentation to that effect.

You need to contact the custodian and inform them of this fact. The $1600 and any earnings must be rolled back to the IRA.

[DMFA]

spiritrider wrote:

Actually, it is not permitted to rollover anything but pre-tax assets from an IRA into a non-IRA retirement plan.

If you already did this you probably missed a certification that you signed on the documentation to that effect.

You need to contact the custodian and inform them of this fact. The $1600 and any earnings must be rolled back to the IRA.

Click to expand...

Can he/she just deduct it from this year's taxes since they haven't been filed yet? Although I suppose that assumes it was deductible in the first place.  I'm guessing the "paid taxes on it" refers to quarterly taxes or money withheld from a W-2.

[spiritrider]

You are correct that this $1600 contribution is not technically pre-tax until the tax return is filed.

However, given that the OP intends to do a Backdoor Roth, it is likely that they are not eligible for a deductible IRA contribution.

Since the the rollover; hasn't started, is in progress or just completed. I thought it important to let them know $1600 of the rollover is not permitted.

The only likely good options are to; not do it, stop it in progress if possible or reverse it ASAP.