Author Topic: Backdoor Roth and traditional ira  (Read 1073 times)

learner

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Backdoor Roth and traditional ira
« on: January 06, 2021, 09:51:52 PM »
Hi-
I have been contributing post tax $s to the annual max of $6k into backdoor IRA account. I now plan to roll 401k into a traditional IRA, can I continue to contribute thru backdoor IRA or will having pre-tax dollars in a traditional IRA limit me?


TwoCitiesCapital

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Re: Backdoor Roth and traditional ira
« Reply #1 on: January 06, 2021, 11:38:04 PM »
Hi-
I have been contributing post tax $s to the annual max of $6k into backdoor IRA account. I now plan to roll 401k into a traditional IRA, can I continue to contribute thru backdoor IRA or will having pre-tax dollars in a traditional IRA limit me?

It's my understanding it gets VERY complicated if you're not converting ALL traditional IRA assets across all accounts.

Had to convert my own rollover IRA in 2020 to facilitate backdoor conversions myself. I can't walk you through the specifics of the complexities, but ultimately agreed with my accountant it wasn't worthwhile to try to do partial amounts and converted the whole thing to avoid future headaches.

Castanza

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Re: Backdoor Roth and traditional ira
« Reply #2 on: January 07, 2021, 02:49:37 AM »
Isnít the cap still 6k? In other words, you can have both a Roth and traditional itís, but the max contribution is distributed across both.
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LC

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Re: Backdoor Roth and traditional ira
« Reply #3 on: January 07, 2021, 06:29:30 AM »
Hi-
I have been contributing post tax $s to the annual max of $6k into backdoor IRA account. I now plan to roll 401k into a traditional IRA, can I continue to contribute thru backdoor IRA or will having pre-tax dollars in a traditional IRA limit me?

It's my understanding it gets VERY complicated if you're not converting ALL traditional IRA assets across all accounts.

Had to convert my own rollover IRA in 2020 to facilitate backdoor conversions myself. I can't walk you through the specifics of the complexities, but ultimately agreed with my accountant it wasn't worthwhile to try to do partial amounts and converted the whole thing to avoid future headaches.
That's right - there is a somewhat complicated method the IRS uses to assess taxes if you have, say 100K of total pre-tax IRA funds across accounts, and are converting a portion (say 6K) to a Roth IRA.
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Jurgis

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Re: Backdoor Roth and traditional ira
« Reply #4 on: January 07, 2021, 06:40:13 AM »
Hi-
I have been contributing post tax $s to the annual max of $6k into backdoor IRA account. I now plan to roll 401k into a traditional IRA, can I continue to contribute thru backdoor IRA or will having pre-tax dollars in a traditional IRA limit me?

You should either keep existing 401k or convert it into personal 401k. If you convert it to traditional IRA, backdoor contributions would become complicated and not tax efficient.
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TwoCitiesCapital

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Re: Backdoor Roth and traditional ira
« Reply #5 on: January 08, 2021, 02:19:40 PM »
Isnít the cap still 6k? In other words, you can have both a Roth and traditional itís, but the max contribution is distributed across both.

That's right. Contributions limits are calculated across all accounts. But the conversions themselves don't count as a separate contribution.

So you can throw 6k into a traditional and then convert that into a Roth and its still just the 1 contribution.

NoCalledStrikes

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Re: Backdoor Roth and traditional ira
« Reply #6 on: January 08, 2021, 08:11:41 PM »
Two choices, both are good.

1) Do what Jurgis proposed. It is sound advice. 401k's are excluded from Roth IRA partial conversion calculations and allows you to backdoor IRA post-tax contributions and easily convert them into Roths for no additional tax.  This is a BIG benefit if used wisely. Do not do partial roth conversions with comingled traditional IRA funds or you will literally be keeping paperwork on the pre-tax/post-tax values and updating on your taxes annually for the rest of your life.
2) Bite the bullet and convert the 401k with the post-tax dollars in it into a Roth IRA before the earnings on its post-tax contributions get any bigger or your tax rates go up.  Once the 401k is converted to a Roth, that account is irrelevant to future partial Roth conversions.

Good luck!

learner

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Re: Backdoor Roth and traditional ira
« Reply #7 on: January 14, 2021, 06:28:48 PM »
Thanks guys