Too late for Backdoor Roth for 2017?

[jfoxcpacfp]

No, it is not too late for 2017. The pro-rata rule states that you are taxed pro-rata if you have a balance in your pre-tax IRAs as of 12/31/xx for conversions done during that calendar year. As long as you zero out your SIMPLE before 12/31 each year that you do a conversion, you'll be fine.

Note that if you have participated in your SIMPLE for < 2 years, you will owe a hefty 25% penalty so you don't want to roll any amounts over until you've participated for at least 2 years. For simplicity's sake, contribute for 2 years (the prior year and the current year) every 1st quarter and convert so you can roll over your SIMPLE every other year. Of course, you'll need an active 401k/403b (including solo-k) to receive the rollover or you'll owe tax on rolling it over to a Roth.

[EasyE]

I currently have rollover IRAs and Simple IRAs in vanguard. The Simple is actively contributing each month. Is it too late for 2017 because I don't have a zero balance? Also for 2018, I'm not sure how the rule works here. Do I zero out my IRAs (via 401k in Fidelity), make the back door contribution, but then continue to get my monthly Simple contribution into Vanguard? Do I need to wait until the end of the year? I'm a little lost here.

[cgossage]

There is no issue with transferring the full balance. I was just trying to clarify that you can’t avoid taxes by only converting $5,500 instead of the full amount.

There is also no issue with doing two conversions. You will have to file Form 8606 in both 2017 and 2018 either way.

[RegenDoc]

cgossage wrote:

If I’m understanding you correctly, 2017 was the first year you have been contributing to your Primerica Traditional IRA account and you also have a Roth account with them. In the traditional account you contributed $5,500 for 2017 and also had some gains.

If this is the case, you can do as you said and open up new Traditionsl and Roth accounts at Vanguard and then roll your old balances into them.
No matter if you only convert $5,500, of your old Primerica account, you will pay some taxes. On any Roth Conversion, you convert a pro rata share of any traditional IRA that you have, and a portion of the gains. I would convert the whole balance instead since the taxes will be minimal.

You can also contribute your 2018 IRA contribution after opening your accounts at Vangurd. You can do this before you convert your 2017 balance and convert then convert your total $11,000 + 2017 gains all at the same time a couple of days later.

Click to expand...

You are correct, 2017 was the first year for Primerica traditional IRA.

I thought the pro rata only applied if I had money in another traditional IRA account. If I transfer the entire balance from Primerica traditional IRA to Vanguard, then convert the entire Vanguard traditional IRA to Roth, I won't have any other pre-tax accounts with a balance.

If I am not able to make my full 2018 contribution yet, I can convert the 2017 contribution now and convert 2018's contribution later in the year, I just have to fill out the 8606 form twice, correct?

 

[pistolpete]

Awesome, thanks so much guys, I appreciate it!

[The Physician Philosopher]

If it's your first time (like it was mine this year) can follow this tutorial:

https://thephysicianphilosopher.com/2018/01/15/first-backdoor-roth-on-vanguard/

I answer some of your other questions here:

https://thephysicianphilosopher.com/2018/01/29/dont-miss-backdoor-roth/

[cgossage]

If I’m understanding you correctly, 2017 was the first year you have been contributing to your Primerica Traditional IRA account and you also have a Roth account with them. In the traditional account you contributed $5,500 for 2017 and also had some gains.

If this is the case, you can do as you said and open up new Traditionsl and Roth accounts at Vanguard and then roll your old balances into them.
No matter if you only convert $5,500, of your old Primerica account, you will pay some taxes. On any Roth Conversion, you convert a pro rata share of any traditional IRA that you have, and a portion of the gains. I would convert the whole balance instead since the taxes will be minimal.

You can also contribute your 2018 IRA contribution after opening your accounts at Vangurd. You can do this before you convert your 2017 balance and convert then convert your total $11,000 + 2017 gains all at the same time a couple of days later.

[RegenDoc]

I'm interested in doing a few things with regard to my IRAs and want to make sure I do things in the best order.

 

I have a traditional and Roth IRA with Primerica presently. I want to get away from load and reduce fees so I opened up a Vanguard traditional IRA and completed my 2017 contributions there.

The next things I want to accomplish are transferring both my traditional and Roth IRAs to Vanguard and then make a backdoor Roth conversion. I assume the best way to accomplish these is to first open a Roth IRA with vanguard and then transfer the balances from the traditional and Roth IRAs to their respective Vanguard IRAs. Once those transactions clear I can make the backdoor conversion.

Since I contributed gradually over 2017 I have some gains. I should be able to convert $5500 from traditional to Roth with no taxes incurred on the gains. This is my first year contributing to this non-deductible traditional so the overall balance is small so maybe it makes sense to convert it all. After this move I will have $0 in both Primerica IRAs, and $0 in traditional IRA and all in Roth.

Once this is done I want to make my 2018 non-deductible traditional contributions and then convert that as well. To simplify the process, I'd like to make the full $5500 traditional contribution and then convert a couple days later later in the year. Outside of paperwork for 2 conversions, is there any other reason I can't or shouldn't do a second conversion in a year?

 

Do I have this correct?

 

Thanks for any help.

[PhysicianOnFIRE]

As others have said, it's not too late for 2017. The only significance of 12/31/2017 is that's the date you needed to have a zero balance in traditional IRAs to avoid the pro rata rule.

You've got until Tax Day in mid-April to get the 2017 backdoor Roth done, and you can do it for 2018 anytime from 1/1/2018 to mid-April, 2019.

I made my Vanguard IRA contribution 1/2 and converted on 1/3, completing my 2018 Backdoor Roth as soon as possible.

[cgossage]

As spiritrider said, there are two components.  The contribution and the conversion.  You have until 4/17 to contribute a non-deductible contribution for the 2017 tax year.  Your conversion will be for the 2018 tax year, but there shouldn't be any income of the conversion if you convert within a few days.

If you are looking to make a 2018 contribution as well, you can actually make a 2017 and 2018 contribution now and then convert both of them at the same time.  There is no need to wait until May.

Also, double check that you don't have any other Traditional or SEP IRA's floating around before you begin the conversion process. Because of the pro-rata rules, any conversion will include a portion of those accounts as well.

[spiritrider]

The end of the year just determines in what year the conversion occurs. A Backdoor Roth is two separate actions for a desired effect:

1. Non-deductible traditional IRA contribution.


2. Roth conversion with little to no tax liability.

There is no requirement that they be for or in the same year. Although, it is better for the time between 1 and 2 to be as short as possible to minimize taxable earnings.

Since a Backdoor Roth is intended to mimic a normal Roth contribution. I would consider any contribution from 1/1/2017 - 04/17/18 followed by a Roth conversion in any year to be a 2017 backdoor Roth. 2017 is the year of contribution space.

[pistolpete]

Oh really? I thought the conversion deadline was Dec 31.

[artemis]

You should be able to do the traditional-to-Roth conversion for 2017 now.  But if you'd rather contribute for 2017 now and for 2018 in May, and then do just one conversion, that's fine, too.  The amount of tax you owe will be pretty small, so I wouldn't fret over it too much.

[pistolpete]

I became an attending in August 2017, and I’ve made just enough in 2017 to be over the max for direct contributions to a Roth IRA. I wasn’t able to contribute the $5500 by December 31, 2017 to a non deductible traditional IRA.

My understanding is that I can still contribute the $5500 for the 2017 tax year before April 17, 2018 but that it can’t be converted to a Backdoor Roth IRA. However, can I contribute another $5500 in early May for the 2018 tax year, and convert that entire amount via Backdoor Roth method and just pay the taxes on the whatever growth occurred in those 2 weeks before the recharacterizarion is implemented?