If I put in 5500 into a rollover IRA, can I just covert that into a roth IRA? Would that be the same as a backdoor IRA?
I had a rollover IRA from before that I had placed 5500 in in 2017 when I had thought my salary was going to be 100k (was planning on applying to fellowship and did not.
Thanks
If I put in 5500 into a rollover IRA, can I just covert that into a roth IRA? Would that be the same as a backdoor IRA?
I had a rollover IRA from before that I had placed 5500 in in 2017 when I had thought my salary was going to be 100k (was planning on applying to fellowship and did not.
Thanks
Did you contribute a new $5,500 to that IRA for 2017? Is there other money in that rollover IRA other than that?
It’s a pretax IRA, meaning any money that was deducted or contributed pretax into it gets taxed on conversion. If you contributed that $5,500 anew and there is no other funds in there other than it and its gains, then you can classify it as a non-deductible contribution and do backdoor with it, except you’ll pay taxes on the gains. Hence if you earned 20%, you’ll add $1,100 to your taxable income in 2018.
The conversion, since it is done in 2018, will go on your 2018 taxes regardless of the year for which it was contributed.
If you make a conversion to Roth IRA in 2018, including for your backdoor, then it will be considered to come proportionally from all pretax IRAs based on the balance on 12/31/2018. This means that, if you have other pretax IRA money, then you need to find a qualified plan like a 401(k), 403(b), or TSP into which to rollover the money so your non-deductible basis doesn’t get taxed on conversion.
If your income is low enough you might be able to do a Roth Recharactization (which changes your Rollover contribution to a Roth contribution) on the 2017 contributions.
With only $11,000 in the account you could also always just convert all of it. Your tax hit will be minimal.
“Rollover” = pretax to pretax
“Convert” = pretax to Roth
– state your 2017 traditional IRA contribution as non-deductible on your 2017 taxes (creates a basis of $5,500)
– contribute $5,500 to the traditional IRA for 2018 (non-deductible)
– convert $11,000 of the traditional IRA to Roth
– rollover the remainder of the pretax IRA (initial rollover and the gains on your non-deductible basis) to a qualified plan like 401(k) etc before 12/31/2018
Everything that was pretax ends up in pretax
Everything that was post-tax (non-deductible) ends up in Roth
Nothing is taxed extra
Bob’s your uncle!
…or: just convert the whole thing. You’ll add the original pretax amount and the gains to your taxable income for your 2018 taxes. Looks like you had about $6,000 in money that is still pretax – that would be a tax bill of around $2,000ish (guessing around 33% bracket or so) which might be worth it to you. Up to you
If you can contribute to the rollover IRA, you don’t necessarily need to do a new account. You can specify the amount you convert; just make sure it’s equal to the total amount of non-deductible contributions (presumably $11,000).
It will be easiest to do the pretax rollover after the conversion since that amount is dynamic (gains change every day) and you can select the entire account instead of specifying an amount.
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