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  • Roth Conversion

    Wanted to get some takes on my goal to be able to try to Backdoor Roth.

    This year I already rolled in my old rollover to my current 403b.
    I max out 403 and 457 annually now.

    My wife stopped working last year. (Non medical)

    Her old 401k rollover sits at 33k
    Traditional Ira at 6400

    Question is...do I convert both of those to Roth now so then I can start doing Backdoor Roth’s without the prorata

    Do I wait for the next Bear to do that or wait in case I have a down income year....stigma of market timing?

    Do I bag the idea and just maximize pretax plans

    I read PoF post on his 212k mega conversion. But still looking for input.

    Info
    37yo
    Margin tax this year will be 35% fed 6.85% state
    Employed with defined benefit pension that will be significant portion of retirement plan.
    403 and 457

    Thanks for any insight!


  • #2
    Whose TIRA is it? All pre-tax?

    You've got several choices. You can leave her old 401k where it is for now and get rid of the TIRA in 2018 by converting to Roth (not that much $) then do backdoor Roth for her.

    This assumes the TIRA is hers, of course. If it's yours, just roll into your work plan, but I think you would already have done so if that were the case.

    Or you can do the backdoor Roth maneuver for yourself only and r/o her 401k to an IRA if the choices in the old plan aren't very good.

    You can still do part 1 of the backdoor Roth, which is to contribute to a n.d. IRA then wait until next year to convert. I'm not a fan of waiting for the next bear but if you foresee a down income year, that's a possibility.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      My knowledge is lacking.

      By the sounds of it, she can own those accounts, we file jointly and I can do a separate Backdoor Roth without pro rata?

      I thought if either spouse has them then they face pro rata.

      This would solve my problem as I feel retirement will be well funded already with the pension and tax deferred plans. So maybe 5500 on my own would be sufficient Roth Monies for now

      Then look at conversion ladder closer to retirement.

      Comment


      • #4
        Nope, the IRAs are "Individual" Retirement Accounts. Even though you are reporting them on a jointly-filed return and your joint AGI is responsible for calculating the limitations (which does cause confusion), the actual accounts, contribution amounts, etc. are assigned per owner. You will be fine on your own. Problem solved!  

        I'd like to take this opportunity to say that, by asking this question, @Seabass, you have probably helped 10+ others who had the same misconception. By asking the questions that may appear to be simple, everybody learns. For all you lurkers out there, if you can't find what you need, please do not be shy about asking for help.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5




          I’d like to take this opportunity to say that, by asking this question, @seabass, you have probably helped 10+ others who had the same misconception. By asking the questions that may appear to be simple, everybody learns. For all you lurkers out there, if you can’t find what you need, please do not be shy about asking for help.
          Click to expand...


          Thank you Johanna for your comment.  It encouraged me to jump in.  I'm basically the reverse of @seabass.  We are moving (again) for her job as a physician, and I have not lined up employment and have considered going back to school full time.  We have joint finances, but we will not yet be married by the end of the 2018 tax year.  Since I will have much lower income this year, and it would be calculated on my personal tax rate, is there any reason for me not to convert everything (or at least a lot) to a Roth?

          Does anyone have a good tool or reference to calculate the taxes to set aside resulting from the conversion?

          Comment


          • #6
            You deserve a big pat on the back, thank you.

            Yes, your thinking makes sense. Of course, I do not know how much $$ you are talking about, but you should be able to calculate a decent back-of-the-envelope tax projection if you'll be working for part of the year and the only other complexity is how much of your IRA to convert a Roth. This sounds like a good year to do so to me. You might even qualify for the Lifetime Learning Credit and a student loan interest deduction.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7
              Does her old 401(k) accept incoming rollovers if she doesn't work there anymore?  It might.  Check the plan.

              If not, and you still want to consider doing backdoor Roth for her as well, you might want to consider her starting a small self-employed business to have a 401(k).  She only needs to earn positive dollars to open and contribute to a self-employed 401(k) which accepts incoming rollovers (p much any major brokerage but Vanguard).  Since she has no other job, she could contribute her entire earnings to it should you or she desire.  Some people do internet surveys for this sort of thing.  I've heard of people having $10 income just to do this.

              You could then rollover the pretax IRAs into her SE 401(k) (no tax since it's pretax to pretax) and do backdoor Roth IRA for her as well for the full $5,500 thanks to the spousal IRA rules.  If you can be certain of doing this in 2018, then you could even do the non-deductible $5,500 traditional IRA contribution for 2017 (before 4/18) and convert it to Roth without penalty, as long as the pretax to pretax rollover is done by year's end (12/31/2018).

              The only thing shared for *individual* retirement arrangements is income when filing jointly.  Each is still owned by each individual and has its own contribution limit, basis tracking, pro rata taxation of non-deductible contributions, and so forth.

              So, to recap:

              • You can do backdoor Roth tax-free independent of your wife's pretax IRAs

              • Consider just converting the $6,400 to Roth and paying taxes on it in 2018, but that'd cost you like $2,500

              • If she can't rollover to her existing 401(k), and you don't want to convert to Roth, consider having her earn a few bucks as a self-employed person and opening a SE 401(k)

              • Rollover the pretax Traditional IRA to the 401(k) in 2018

              • If there will be $0 in pretax IRAs on 12/31/2018, you can do $5,500 backdoor Roth for her too for both 2017 and 2018


              ...or, just forget about it if one backdoor Roth will be enough, and put the rest in a taxable brokerage account :-)

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              • #8
                Awesome summary. Thank you DMFA and Johanna

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