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Anyone know how a UTMA is taxed when liquidated?
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Hello,
I have an accepted offer from Amazon with start date early next month. With the hiring freeze in place I am worried that layoffs will be next and new hires are more at risk when it comes to layoffs. This is making me wonder if it is good time to switch. Would really appreciate some input in this matter.
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The value of a backdoor conversion is the fact that you don't need to pay taxes on the gains (if you otherwise would have invested the money in a taxable account).
If you make enough not to qualify for direct roth contribution or the tax break from traditional contribution, then it makes sense.
Super helpful. Thank you!!
Thats not how taxes work. You are fine and didn’t do anything dumb other than this post.
These replies are sort of missing the point. The tax point is that whatever bracket you’re in, your rate is likely historically low. As soon a Fuhrer Trump’s term comes to and end, trillion dollar deficits won’t be allowed to go on forever. Backdoor Roth’s are likely a good idea in any bracket in the current tax environment.
Guys - Roth conversions can be more complicated than this. OP, if you have other taxable IRA accounts (other transitional IRAs, SEP, etc), then you can’t simply convert this year’s contribution without a tax penalty. You have to look at your entire IRA portfolio and apply a calculation. You should consult a tax advisor.
You are thinking about it correctly. This is a decision everyone needs to make and it has 2 parts:
1. Quantitative - current vs future income-tax rate: you guess is as good as anyone’s, and there are a lot of variables playing into it.
2. Qualitative - what feels more comfortable, to pay income-tax now or later?
The tax on the gains comment is misleading:
1. Both traditional and Roth are shielded from capital gains tax.
2. Both pay income tax:
a. Roth pays present value
b. Traditional pays future value
Example: If you set the income-tax for the traditional in an separate account with the same investment/fund etc, in 35 years when you retire, that separate account will be the exact amount of your tax liability, grown in parallel to your principle.
The variable is the income-tax “rate” you have in the future with requires a special tool to calculate: 🔮
K3 backdoor Roth is always a good idea no matter what your marginal rate is. Its the choice between having a tax advantage or not having a tax advantage. There is no conceivable reason NOT to fully fund your Roth IRA in this scenario.
Who is your FA? I need one.
Makes sense now with the market way down so you’re mostly likely moving over less money, and thus paying less in taxes. What’s concerning is it sounds like your FA didn’t make sure you fully understand all the implications here. Do you have enough cash on hand to pay the taxes?
Or maybe you don’t have anything in a traditional IRA now so you won’t owe any taxes
🔮
^The question is not “Roth vs nothing”.
The question is “Roth vs Traditional”.
There is a case for both.
Both shield you from capital gains (the sole benefit of an IRA)
The reason to choose one over the other is:
1. Current vs Future income-tax rate 🔮
2. Preference of paying income-tax now or later.
@K2 you’re wrong - SM1 is correct, OP is asking about a conversion...not a contribution which implies “Roth vs nothing”. And as SM1 said, it would be inconceivable to not maximize your tax advantage.
K2, you can only backdoor if you can not make a traditional IRA contribution because you are over the income limit. Otherwise you would just make a Roth contribution (or conversion) without any ‘backdoor’ about it. This is absolutely the decision between making a Roth contribution or nothing. You’re an idiot.
Edit to add, for your IRA, the answer is always Roth, never traditional (so long as you will at some point in your life you will exceed the income limits for tIRA) otherwise you will run into issues of Pro Rata.