Several questions here as fiscal year winds down regarding taxes, filling out 8606 and more.
Here is situation. This is the first year I am above Roth Limit, so cannot directly contribute to that account. I also switched employers and at the suggestion of people in this forum, rolled over all my prior 403/457/401 pre-tax investments to a Fidelity Rollover IRA for more investment control, rather than to the new employer 401k plan. Additionally, I had a small amount of AFTER TAX money that I contributed to the 401a with my old employer that was converted to a Roth IRA with Fidelity as well. Both my prior employer and new employer use Fidelity for management of money, so now the OLD employer money is sitting in the Rollover and Roth IRA accounts as described above, and the new employer 401k is established and being funded now from new paychecks.
This week, I placed $5500 into a newly opened Traditional IRA account I have with Schwab (where I keep accounts that aren't associated with employer). I was intending to convert that money to a Roth IRA, but have learned about the Pro-Rata rule, and since I now have a big chunk of money in the Fidelity Rollover IRA from previous employer, converting this $5500 in the Schwab T-IRA to a Roth would be taxed. Another post recently garnered suggestions to NOT convert this $5500 this year to the Roth for this reason. Question 1: Is this correct?
Now onto tax issues: I'm looking at form 8606 and am curious about filling this out this year with both the different contributions listed above. Here are the numbers:
Rollover IRA:
PRE-TAX money from old employer 403/457/401 that was converted to the Rollover IRA at the time of transfer: $103,065
Account value NOW since the transfer and subsequent investment gains: $107,808
Roth IRA:
POST-TAX money from old employer converted to the Roth IRA: $7,700
Account value now since the transfer and subsequent investment gains: $8,504
Schwab Traditional IRA:
Nondeductible contribution I made a couple days ago: $5,500.
Let's assume these numbers listed here are on December 31st.
Please correct me if I'm wrong: Line 1 of form 8606 will be $5500 for the nondeductible contribution. Question 2: What goes on Line 2 of the form? Is it the TOTAL account value of the Rollover IRA ($107,808) or the amount that was initially transferred ($103,065)?
Question 3: The money that was converted to the Roth IRA ($7,700) does not factor into this equation, correct? That money has already been taxes and can now grow tax free without any further tax reporting?
Question 4: What would be the wise decision on moving this Rollover IRA money somewhere so I can get back to an annual $5500 back-door conversion? Is the only real option to move the money to my new employer 401k? I'm not self-employed so as I understand it, I can't create a Solo 401k and move it there...
Question 5: If I DON'T end up moving the Rollover IRA funds, should I just continue contributing annually the $5,500 to my traditional IRA?
Question 6: Let's assume I DO decide next year to move all the Rollover IRA to my new employer. That leaves me with $5500 basis still in my T-IRA and if I contribute another $5500 in 2018, can I just convert the total $11,000 then to my Roth? (I realize that I would pay taxes on any gains in the interim that are converted).
I think that's all the burning questions for the moment. Any advice, corrections, suggestions are greatly appreciated...
Here is situation. This is the first year I am above Roth Limit, so cannot directly contribute to that account. I also switched employers and at the suggestion of people in this forum, rolled over all my prior 403/457/401 pre-tax investments to a Fidelity Rollover IRA for more investment control, rather than to the new employer 401k plan. Additionally, I had a small amount of AFTER TAX money that I contributed to the 401a with my old employer that was converted to a Roth IRA with Fidelity as well. Both my prior employer and new employer use Fidelity for management of money, so now the OLD employer money is sitting in the Rollover and Roth IRA accounts as described above, and the new employer 401k is established and being funded now from new paychecks.
This week, I placed $5500 into a newly opened Traditional IRA account I have with Schwab (where I keep accounts that aren't associated with employer). I was intending to convert that money to a Roth IRA, but have learned about the Pro-Rata rule, and since I now have a big chunk of money in the Fidelity Rollover IRA from previous employer, converting this $5500 in the Schwab T-IRA to a Roth would be taxed. Another post recently garnered suggestions to NOT convert this $5500 this year to the Roth for this reason. Question 1: Is this correct?
Now onto tax issues: I'm looking at form 8606 and am curious about filling this out this year with both the different contributions listed above. Here are the numbers:
Rollover IRA:
PRE-TAX money from old employer 403/457/401 that was converted to the Rollover IRA at the time of transfer: $103,065
Account value NOW since the transfer and subsequent investment gains: $107,808
Roth IRA:
POST-TAX money from old employer converted to the Roth IRA: $7,700
Account value now since the transfer and subsequent investment gains: $8,504
Schwab Traditional IRA:
Nondeductible contribution I made a couple days ago: $5,500.
Let's assume these numbers listed here are on December 31st.
Please correct me if I'm wrong: Line 1 of form 8606 will be $5500 for the nondeductible contribution. Question 2: What goes on Line 2 of the form? Is it the TOTAL account value of the Rollover IRA ($107,808) or the amount that was initially transferred ($103,065)?
Question 3: The money that was converted to the Roth IRA ($7,700) does not factor into this equation, correct? That money has already been taxes and can now grow tax free without any further tax reporting?
Question 4: What would be the wise decision on moving this Rollover IRA money somewhere so I can get back to an annual $5500 back-door conversion? Is the only real option to move the money to my new employer 401k? I'm not self-employed so as I understand it, I can't create a Solo 401k and move it there...
Question 5: If I DON'T end up moving the Rollover IRA funds, should I just continue contributing annually the $5,500 to my traditional IRA?
Question 6: Let's assume I DO decide next year to move all the Rollover IRA to my new employer. That leaves me with $5500 basis still in my T-IRA and if I contribute another $5500 in 2018, can I just convert the total $11,000 then to my Roth? (I realize that I would pay taxes on any gains in the interim that are converted).
I think that's all the burning questions for the moment. Any advice, corrections, suggestions are greatly appreciated...
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