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  • MFS and backdoor roths.

    Hey all,

    Thanks for all of your helpful advice. I've learned a lot about beginning finances recently and am about to start internship. I was looking into getting a ROTH IRA started.

     

    I recently got married in February. I am still working on my loan repayment strategy, PAYE/IBR vs. refinancing (still waiting on drb...). If I do go the IBR/PAYE route I would most likely do married filing separately to keep loan payments down. Correct me if i'm wrong, but I would not qualify for a ROTH IRA if i MFS and live with my wife, which would mean I would need to do a backdoor ROTH.

    Once residency starts I would need to create a traditional IRA, stick 5500 in it and then do a conversion to a ROTH IRA before 12/31/2016.

    Alternatively, could I roll funds from the 403(B) from my new employer into the ROTH IRA? And if so, can I "replenish" the funds in my 403(b) to reach the 18k cap?

    Also, my understanding is that if I wanted to max my 403(B), I would have to get 18k in it by December 31st? This seems difficult to do with residency starting in July.

    One other question regarding the wife's finances.  She has already started contributed to her ROTH IRA this year, which would essentially not be allowed b/c of the MFS filing for next year.

    1)Would she need to roll that roth IRA money into her 401k (if allowed), and then convert it back to a ROTH? Or just create a traditional IRA, than follow suit as above.

     

    Obviously, if I end up refinancing, we would just end up negating the married filing separately and both not need the backdoor roth.

     

    Thanks a bunch!

  • #2
    You are almost certainly correct that you w/n qualify to contribute to a Roth with MFS.

    You can each use the back-door Roth strategy. Neither will involve your qualified retirement plan contributions/distributions (at work). You can convert from your nondeductible TIRA in any year - it d/n/h to be the same year you contribute to the TIRA. However, the longer you wait between contribution and conversion, the greater the probability of disparity between the initial contribution and the amount converted. Not that big a deal, but I prefer to convert within a few days. Be sure to file Form 8606 with your Form 1040s.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Thanks, so I wouldn't need to rush filling and converting a TIRA by december.  As long as I get the 5500 in by April next year, I can convert that amount to a ROTH whenever. And could I also convert multiple years worth of contributions in a single conversion?

      Was I correct in saying that because my spouse has already put money into her roth IRA for this  year she would have to roll it into another account and convert it?

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      • #4


        Thanks, so I wouldn’t need to rush filling and converting a TIRA by december.  As long as I get the 5500 in by April next year, I can convert that amount to a ROTH whenever.
        Click to expand...


        That is correct.


        And could I also convert multiple years worth of contributions in a single conversion?
        Click to expand...


        Also correct.


        Was I correct in saying that because my spouse has already put money into her roth IRA for this  year she would have to roll it into another account and convert it?
        Click to expand...


        Sorry I missed this one. She will have to withdraw her contribution and pay tax on any earnings or ask the custodian if they will re-code it from a Roth to a TIRA (my preference if the custodian can do so).
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Thanks a bunch for the clarification! One more question.  If I leave the money in the traditional IRA and convert to a Roth next year, would there be a pro-rata tax on that money when I eventually convert it?

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          • #6




            Thanks a bunch for the clarification! One more question.  If I leave the money in the traditional IRA and convert to a Roth next year, would there be a pro-rata tax on that money when I eventually convert it?
            Click to expand...


            As long as you have no pre-tax money in IRAs at the time of your back-door conversion, you will not owe any pro-rata tax. However, you will owe taxes on any income and growth in the nondeductible TIRA balance at the time you convert.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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