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Eliminating Existing IRA before Backdoor Roth Contribution

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  • jfoxcpacfp
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    Is it possible to make a very nominal amount (say $200) from another source (e.g. survey, focus group, etc.).

    Use that $200 to open a solo 401k.

    Then roll over the IRA to that account?

    This is what I was thinking, but the only catch is my IRA has $200,000 in it… are there any stipulations that would preclude the much larger IRA rollover to the very small solo 401k?

    Thoughts?
    Click to expand...


    It has been done and will be done in the future. The problem is, you're supposed to be "in business" with the intent to continue (@spiritrider puts this much more eloquently) and doing a few surveys just to realize a bit of earned income in a year just to open a solo-k just to roll over your pre-tax TIRA could cause a problem somewhere down the line should you be audited. If you intend to continue with your business in the future, that is a much better basis for starting a solo-k.

    The size of the solo-k in relation to what you roll into it, however, is irrelevant.

    Leave a comment:


  • G
    replied
    "my IRA has $200,000 in it"

    I'm interested in hearing more about that.

    Leave a comment:


  • George
    replied
    Is it possible to make a very nominal amount (say $200) from another source (e.g. survey, focus group, etc.).

    Use that $200 to open a solo 401k.

    Then roll over the IRA to that account?

     

    This is what I was thinking, but the only catch is my IRA has $200,000 in it... are there any stipulations that would preclude the much larger IRA rollover to the very small solo 401k?

     

    Thoughts?

    Leave a comment:


  • Adrian
    replied
    My current 403b accepts rollovers from rollover TIRA, so I would check with your current 403b or 401k plan to see if they accept rollovers.

    Leave a comment:


  • Donnie
    replied
    I would add that not only can you open the TIRA and contribute before April 15, you should.  Otherwise that $11,000 of Roth space for you and your husband is lost forever.  You can keep it in money market until you figure out how to get rid of your pre-tax traditional IRA.  If you get rid of it this calendar year, then you can convert your non-deductible traditional to Roth this calendar year.  If you get rid of the pre-tax TIRA next calendar year, convert next calendar year.

    Leave a comment:


  • jfoxcpacfp
    replied
    Actually, you can open a TIRA for a backdoor Roth while you have your current pre-tax IRAs. The problem is that any conversions to the backdoor Roths will be taxed under the pro-rata rule.

    You mentioned an individual 401k - if you have one, rolling your pre-tax TIRA into that would be the best option. However, you would each need your own solo-k to do so.

    Next-best option is to r/o your pre-tax TIRAs into your employer's 401k/403b. You need to check to see if your employer's plan permits this.

    Third option is to r/o your pre-tax TIRAs into a Roth IRA and pay the taxes. If the balances of your pre-tax TIRAs are relatively low (< $10k), this might actually be the best option.

    It doesn't matter that the existing IRAs are at a different brokerage. You should easily be able to handle everything electronically. If possible, I recommend consolidating at one brokerage for simplicity and ease of monitoring your accounts.

    Leave a comment:


  • Eliminating Existing IRA before Backdoor Roth Contribution

    I know this has been discussed extensively before, but I wanted to confirm the process of getting rid of existing IRAs prior to executing a Backdoor Roth Conversion.  My husband and I both have existing rollover IRAs that are not being actively contributed to.  Our understanding is that we cannot open a traditional IRA to convert to a Backdoor Roth while we still have these existing IRAs.  The question is: What is the best way to get rid of the existing IRAs?  Roll into Individual 401K?  Roll into the new Traditional IRA?  Or can they be converted into the new Backdoor Roth?  The existing IRAs are with a different brokerage than the new Traditional and Roth will be.
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