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  • Pro rata and previous rollovers

    I am a new attending with three retirement accounts left over from previous employer/residency/fellowship. I think they were all pre-tax contributions into sponsored retirement plans, rolled over when I left those jobs. I never made contributions on my own. I've looked all over for someone in a similar position, but didn't see anyone that didn't continue to make contributions. I guess I should've converted them before my income bumped, but wasn't smart enough to have done that.


    Is my basis in traditional IRA’s then considered 0, and therefore all of my potential 2016 backdoor of $11,000 would be considered tax-free? I don’t think that I’ve ever had to complete an 8606 if that matters.


    I tried clicking the "convert to Roth IRA" tab on my account, but it says that I have no funds eligible for this? This is not the 403B account. Does this say anything about these funds and their susceptibility to tax when I do a backdoor?


    I met with a CPA, but I don't think I am explaining myself well enough. Also trying to figure out what to do this year, when I will not be covered by my group's 401(k) plan. Just about to throw my hands up and start burying it in the backyard...

  • #2
    What type of accounts do you have and what are the amounts?

    It sounds like you are in an employed position.  Do you have the ability to do any sort of other independent contracting work?

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    • #3
      I am in a private group, but pre-partner so I guess yes, technically an employed position. Not eligible for group's 401k until next year. I can do some call work but that is paid on w2 through the group. Can't really contract. 28% tax bracket for 2016.

      This sounds terrible, but I don't know what the accounts are. I know my fellowship account was a 403b, just because it still says it. Was covered by that during most of 2016. For some reason I think the residency one might have been a 457? It was at a state university. Found an old statement but that just says FICA ALT plan? Third one I'm checking with my prior HR department to see what it was. Amounts basically 8k, 15k, and 24k respectively.

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      • #4
        If you don't have an account to roll the funds into (such as employer 401k or a solo 401k) your options are keep the accounts as they are until you do or convert them to the Roth.  I don't think you can do that for tax year 2016, so you would have to look at your projected tax rate would be for 2017.  Most likely you wouldn't want pay the tax on a conversion to a Roth.

        Until you get the 401k to roll the other accounts into, just make sure that you are in some good, low cost funds.  Pretty much you just need to control your fees until you can get everything into the same account.  Most of your options are going to be more or less the same, regardless of the type of account that you have, 401k, 403B, 457, IRA, just get into low cost index funds.

        If any of your accounts are IRAs, you have the Pro rata problem for doing a back door roth conversion this year.  If none of them are, you can open an IRA and do the Roth, no problems.

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        • #5
          I would be very surprised if any of your accounts are IRA unless you actively rolled over the funds or you yourself contributed to an IRA. 401(k), 403(b) and 457b do not contribute to your basis for Backdoor Roth conversions. I agree with Handfellow, keep your money where there is for the time being. You may want to check with your present employer, once you have access to the 401k, if it would allow incoming transfers. Then you can consolidate everything into that if you want to simplify your situation.

          Did you mean "I think they were all pre-tax contributions into sponsored retirement plans, rolled over when I left those jobs". Did you mean "left over" from your previous jobs or did you actually "roll them over to an IRA"?

          If none of these accounts are IRA you should go ahead and do Backdoor Roth. Since you do not have self employed income you likely do not have "SEP IRA" and "SIMPLE IRA" to complicate your situation.

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          • #6

            The larger 2 accounts (24k and 15k) were actively rolled over from government employer pension plans into private IRAs. The smaller one (8K) is a 403B from fellowship that is still listed under that employer, but I can no longer make contributions.


            I do have about 15k in 1099 income for 2017, but haven't done anything with respect to Solo 401K or the like. Contractor income for moonlighting. I originally thought this was going to be w2, but learned that my group was paying it incorrectly.


            I assume I might be able to open a solo account, and possibly roll everything over into it? Or would that be limited to the "20% of profits" contribution? Then I would be able to open an account to perform back door Roth for 2017?

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            • #7


              The larger 2 accounts (24k and 15k) were actively rolled over from government employer pension plans into private IRAs. The smaller one (8K) is a 403B from fellowship that is still listed under that employer, but I can no longer make contributions. I do have about 15k in 1099 income for 2017, but haven’t done anything with respect to Solo 401K or the like. Contractor income for moonlighting. I originally thought this was going to be w2, but learned that my group was paying it incorrectly. I assume I might be able to open a solo account, and possibly roll everything over into it? Or would that be limited to the “20% of profits” contribution? Then I would be able to open an account to perform back door Roth for 2017?
              Click to expand...



              If you have 2017 wages as an independent contractor, you can open a solo 401k.  Be sure to open it where they accept rollovers.  Schwab does.  You can then rollover your pretax IRAs and 403b.  The amount that you can contribute from your 2017 earnings is not clear to me from what you posted.  If you maxed out an 18k (24K if older than 50) contribution to a 401k elsewhere in 2017 then you are limited to employer contributions.  The big point of the solo 401k here is to get those IRAs rolled over to clear the way for a Backdoor Roth in 2017 without pro rata issues.  So, even if you are limited in your contributions, it is worth it in my opinion.  I would consider having a CPA help you with your taxes this year to be sure you are doing everything correctly. 

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              • #8

                I don't have access to current employment 401k for 2017; not eligible until January. I haven't made any contributions for 2017 to the rollover accounts. Should have around 15K on 1099 for 2017. Like you said, from what I have been reading it seems like I can roll the previous 401k/403b monies into a solo-K and still contribute to it for 2017. 18k? or 20% of what will be on my 1099?


                Then I'd be free for the back door everyone raves about.


                CPA for sure, until I can get things on auto-pilot and start in with TurboTax...


                I suppose a follow-up question would be that I opened a traditional IRA for my wife in 2016. Any implications with this and the above? She did not work in 2017 and has no previous accounts.

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                • #9

                  Just be aware. If you want to make a 2017 non-deductible contribution and the Roth conversion in the 2017 tax year. You will need to adopt the one-participant 401k, rollover all pre-tax IRA assets and perform a Roth conversion of the remaining IRA assets by 12/31/2017.


                  However, if the 401k plan you are eligible for on 1/1/2018 has reasonable investment options and accepts rollovers from IRAs. There is another way to accomplish the Backdoor Roth for the 2017 IRA contribution space in 2018.


                  Make both the 2017 and 2018 non-deductible traditional IRA contributions together in 2018 prior to the tax filing deadline. Rollover the pre-tax IRA assets to your employer's 401k. Perform a Roth conversion of the remaining IRA assets with little to no tax liability. You would minimize any taxable earnings by doing the latter two soon after the former, but they must be done by 12/31/2018.


                  Note: If you do have net self-employment earnings in 2017, you could adopt and fund a SEP IRA anytime up to your tax filing deadline including extensions, but you will also want to roll those pre-tax assets to your employer's 401k by 12/31/2018.


                  When you have an employer 401k with good investment options and accepts IRA rollovers. It is really a matter of choice between a SEP IRA and a one-participant 401k. I used to think that you should always use a one-participant 401k in these situations. Now I think the decision it is much more nuanced.

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                  • #10


                    I don’t have access to current employment 401k for 2017; not eligible until January. I haven’t made any contributions for 2017 to the rollover accounts. Should have around 15K on 1099 for 2017. Like you said, from what I have been reading it seems like I can roll the previous 401k/403b monies into a solo-K and still contribute to it for 2017. 18k? or 20% of what will be on my 1099?
                    Click to expand...



                    I think you are confusing employEE versus employER contributions for the solo 401k.  You are both the employee and the employer of your 1099 income.  


                    1.  For the employEE contribution if you are under 50, you can put in a max of $18000.  You must coordinate this amount with any employee contributions to other 401k or 403b plans, but not IRAs.  If you had no contributions to other plans, you have the full amount left to use.   To determine how much of your $15000 you can use, you must first deduction 1/2 of self-employment tax.  So $150000 * 0.9235 = $13852.  Here is the IRS link explaining it:


                    https://www.irs.gov/retirement-plans/one-participant-401k-plans.


                    2.  For the employER contribution, if the above is correct, you have nothing left so don't worry about it.  The 20% employer contribution comes into play when you have met your $18000 employee contribution and still have income left that you want to contribute.


                    If you use this solo 401k route, you need to get moving as the account and rollovers need to be done by 12/31/17.  As spiritrider described, your other option is to use the 401k of your new employer if they allow you to rollover into it.  Not all plans do.  So you have some checking to do.


                    As for your wife, everything with her retirement accounts is separate and has no bearing on what you do for yourself. 


                    Hope the above info helps.


                     

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