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  • Back door Roth IRA

    I recently immigrated to united states and I consider myself financially illiterate and my CPA has not been helpful
    he doesn’t show me the loopholes to shelter the taxes and I end up paying lots of taxes every year
    I work full time for the state and I don’t have any other job or source of income
    My income is more than 350k and my employer offers both 401k and 457 with no match
    I am maxing out both of them
    I don’t know if I can still contribute to traditional IRA and move the funds to backdoor Roth IRA?

  • #2
    Read and understand this:
    This Backdoor Roth IRA tutorial takes you step-by-step through the contribution process including Form 8606, tax implications, common mistakes, and lots more.


    • #3
      Welcome to the Forum.

      Believe it or not, paying a lot of taxes is a good problem to have since it means you are doing very well. But I get it; none of us want to pay more taxes than necessary. Just to get you started, here is a link to a WCI post that touches on your question. 7 Ways to Pay Less Taxes (Like the Rich) | White Coat Investor

      New user tip: the WCI search function is pretty good, and it is rare that there is a financial topic that has not been written about before in the blog or the Forum.

      Now, before embarking on the more time intensive paths (real estate, starting a business), let me engage on just the retirement accounts you mention. First, yes, you can still contribute to an individual IRA and perform a Backdoor conversion. 17 Backdoor Roth IRA Errors to Avoid - White Coat Investor Second, don't discount contributing more to "taxable" accounts. They are actually tax efficient in that they are eventually taxed at capital gains rates (vice your marginal income tax rates) and should have a stepped up basis at death. Third, something you can look into is the Mega-backdoor Roth in your 401k. This may or may not be available, but is great if your plan makes it available. Understanding the Mega Backdoor Roth IRA - Podcast #127 - White Coat Investor

      Keep asking questions. Oh, and if your CPA is not helping you to understand these things you may consider finding one that offers tax strategy. Check out the "Find a Pro" link at the top of the page. But I also think you can do this yourself as you become more financial knowledgeable.


      • #4

        Peds put together a fantastic reference for Backdoor Roth postings.

        The 2021 limit is $6k for the bdroth. Just a note, if your CPA has not been helpful, then you need a different CPA for tax advice and prep.


        • #5
          Yes, you can do a backdoor Roth, as you described above, at least for now. The IRA/Roth IRA is a personal account - you own it from day 1 and you are 100% responsible for making sure you handle correctly. The 401k/403b and 457b accounts are employer-sponsored retirement accounts and not related to IRAs (except in regard to deductibility on taxes, which is not applicable for this conversation).

          You have until 4/15/22 to contribute to a TIRA (nondeductible) for 2021, convert as soon as the funds clear. If you choose to wait until 2022 to contribute to the TIRA, you can contribute to both 2021 and 2022 at the same time.

          My first impression was DIY. I would instead recommend you work with a good CPA for a year or 2, follow the numbers on the return to see where they all came from (ask LOTS of questions, both from your CPA and on the forum), then graduate to DIY. I’ve worked with quite a few non-native doctors and it’s opened my eyes to how difficult it can be to navigate the financial system from point zero, from understanding how/when to negotiate, to investing and reading statements, to doing your taxes, and lots more.

          You are in a good spot here to get help. Welcome to the forum!
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


          • #6
            I’d do the 2021 contribution + conversion now, as it may not be possible to use the Backdoor Roth trick in 2022 (even for a 2021 contribution). There is pending federal legislation that would ban it. It hasn’t passed yet, but why take a chance? If you have the money, do the 2021 Backdoor Roth before December 31, 2021


            • #7
              Thanks to everyone who responded to my questions here.It’s been very helpful and I am in the process of opening IRA for myself and converting it later. I have questions about my husband and if he can have traditional or Roth IRA?
              My husband unfortunately doesn’t have a job. He used to be a physician back in my country however he couldn’t secure a residency here in America and no job. I will contribute to open a traditional IRA for him but we don’t know if he should keep traditional IRA there or he should convert it using Backdoor because my income is over 300k and we file taxes married joint if I understood it correctly traditional IRA is tax deductible?


              • #8
                An individual must have compensation available to them to be able to make any IRA contribution.

                There is no income limit to make a traditional IRA contribution, but you are an active participant in a employer retirement plan and the deduction limit is even less than the Roth income limit. The only IRA contribution you can and should make is a non-deductible traditional IRA contribution followed ASAP* by a Roth conversion (AKA Backdoor Roth).

                Your husband can make a spousal IRA contribution based your compensation, but because you are an active participant in an employer retirement plan. You husband's deduction limit is the same as the Roth IRA income limit. Your husband can and should perform a Backdoor Roth.

                Follow artemis' recommendation. Both you and your husband should do the 2021 non-deductible traditional IRA contributions and Roth conversions well before the end of the year.

                *At some IRA custodians it can take a week or more for the non-deductible traditional IRA contribution to be available for Roth conversion. I recommend you get this all done this month.
                Last edited by spiritrider; 11-06-2021, 08:26 AM.


                • #9
                  Thanks to everyone who provided guidance about Backdoor
                  I was able to complete Backdoor process for myself and my husband
                  Any recommendations on what should I do next?( My apologies for asking very basic questions)


                  • #10
                    Plan on repeating the same process in 2022 IF the BBB legislation isn't passed by the Senate or modified to allow the BDR. The current version has only been passed by the House and it disallows the main part of the BDR, conversion of after-tax contributions to your tIRA into Roth. TBD if this law makes it through the Senate unchanged.