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Need advice - Utilizing backdoor Roth for first time

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  • jfoxcpacfp
    replied

    1. Contact your custodian before the eoy and ask if they will re-code the Roth contributions to TIRA contributions. You will then make backdoor Roth conversions on full amount, paying tax on any growth in the $1,375 contributed to the TIRAs.

    2. Otherwise, you will need to recharacterize the full balance in the Roth accounts to TIRAs (see your step 3 above). You'll still pay tax on the growth, just avoid the paperwork.

    3. You can finish with the $10,125 to each account on 1/2, as you said and then convert full account balance in the next few days, at the same time.

    Leave a comment:


  • Peds
    replied
    wait, you need to re-characterize the money you have already put in the rIRA first, then add whatever is remaining to hit 5500, then "backdoor it" to the rIRA.

     

    for next year, you havent contributed anything yet, so you would put the max 6K for 2019 into a tIRA, then convert it ASAP.

     

     

    Leave a comment:


  • Need advice - Utilizing backdoor Roth for first time

    I’m going to be utilizing a backdoor Roth for the first time in 2018 and was hoping for some clarification/validation to ensure I’m doing it correctly and my plan will work.

    Background: military ER doc, moonlighting on the side
    Previously have contributed to Roth IRA’s for my wife and myself as previously always below the limit; had automatic deposits set up at a different financial institution that deposited money ($458.33 monthly for each of us -total of $1,375 each) in Jan, Feb, and March before I recognized that my MAGI may be over the limit this year so I stopped them. This summer I felt I had enough financial literacy to break off from my financial advisor at my old institution and I moved all my investments to Vanguard.
    I now am fairly certain that my moonlighting income will push me over the MAGI limit so I will need to utilize backdoor Roth. Unfortunately, as above, I had already contributed money to Roth accounts this year.
    I have a traditional IRA at Vanguard (a prior rollover from residency) that is in process of rolling over to the TSP – so by Dec 31 of this year that account should have $0.
    My wife has no competing IRA’s (only has a Roth IRA at Vanguard).

    My plan:
    1. Get money out of trad IRA as above (I have no other competing plans that would prevent the backdoor conversion).
    2. On Jan 2nd, I will open a traditional IRA at Vanguard for my wife and contribute $4,125 to it ($5500 – the $1375 ($458.33 x 3) contributed to Roth as above) and contribute the same amount to my traditional IRA
    3. On Jan 3rd, I will transfer $1,375 from each of our Roth IRAs to our traditional IRA’s
    4. On Jan 4th, I will transfer the entire $5,500 in each account back to the Roth accounts
    5. Then I will very carefully fill out the 8606 forms following the above post and late contribution post guidelines

    A few questions/concerns:
    A. Should I actually contribute $10,125 to each traditional IRA account on the 2nd (and then transfer $11,500 from each account back to Roth account the next day) as I am actually doing my 2018 AND 2019 contributions at the same time (with the limit increasing to $6,000 in 2019)?
    B. I’m not sure exactly which funds the $1,375 I’ve already put into each Roth account went into – does that matter? Or can I just transfer $1,375 out of the fund I have the most in? If it does matter, I’m not sure how to recall/transfer the money out of those specific accounts and am at risk for being penalized for contributing to a Roth in a year in which my MAGI is too high – any advice?

    Thank you for your help!
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