Related Posts
401k or Roth IRA?
Anyone work at GE or GE healthcare?
More Posts
Subject Expert
Enthusiast
Pro
Additional Posts in Consulting
Chief
Does Deloitte reimburse TSA PRE CHECK fees?
Thoughts on staff augmentation work?
Superfoods selection in Westin is impressive...
OP, Backdoor Roth IRA is the following: You are over Roth IRA contribution income limits so cannot contribute, but you want to anyway. You can contribute to a Traditional IRA instead and then convert to Roth immediately. Normally such a contribution would be deducible thus creating the tax-advantage. However there’s an income limit on taking that deduction that’s similar (same?) to the Roth limits. So normally it would make relatively little sense to do it, but unlike Roth it’s not prohibited. Separately, you can convert Traditional IRAs to Roth with no income limits. When you do it, you must pay tax on any gains earned on the IRA. So the Backdoor involves making a non-deductible Traditional contribution and immediately converting to a Roth before any gains have accrued and thus avoiding any taxes.
The problem is if you have a pre-existing Traditional IRA. When you convert an IRA from Traditional to Roth, you cannot designate which funds are being converted if you convert less than all the funds. The IRS forces you to treat it as a pro-rata conversion, thus generating a tax consequence if you have a pre-existing Traditional IRA with imbedded gains.
Note to A1, a pre-existing Traditional IRA doesn’t always mean you shouldn’t use the Backdoor. It could make sense, but you have to analyze the tax consequences much more.
One reason to not have a Traditional IRA is to ensure the continued availability of the Roth Backdoor.
OW1 - thank you! A while ago I was warning some on fishbowl about tax implications of a backdoor. I had 2 financial advisors tell me it was not a good idea for me due to taxes but I didn't know exactly why when I was arguing against it on FB. I have a trad IRA - those in favor must not have had a trad which is why it worked for them. That detail didn't come up. *dots connected*
Guess I’m curious in knowing whether any of you ever felt the need to re-rollover your assets and why. I don’t think I’ll ever need to do that but would like to hear your thoughts
Can you do back foot yourself or do u need to talk to adviser ?
I rolled an old 401k into an IRA and it’s now in my EY 401k so I can do the backdoor roth
Wait wait. What’s a backdoor?
Ow1 - does doing a backdoor from a new trad ira with a different brokerage help at all? Say I have a trad ira with Schwab with $50k ingested. I open a new trad ira with fidelity, contribute $5.5k, then transfer to a new Roth.
ZS2, no. It’s not about segregation of the funds. Law doesn’t allow you to designate which funds are being converted
Ow1 - solid explanation. Thanks