deal with after tax IRA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
liuruyu
Posts: 32
Joined: Thu Jul 26, 2012 1:20 pm

deal with after tax IRA

Post by liuruyu »

A little background:
1. I work full time, and fully fund my 401K at work, and do a backdoor roth.
2. My husband works on his own start up business this year and so far no positive cash flow yet.
3. My husband has rolled all his previous retirement plans (from various employers) into a Vanguard traditional IRA (all are deductible contribution).

My question is:
1. If we were to make a 5K contribution to his IRA this year (it will be a non-deductible contribution) adding to his exising rolled-in Vanguard IRA account, and we will be filing form 8606 for it. What's the benefit of it? It will be after tax dollar, and since it will be in the traditional IRA account, all future earnings will also be taxed as well.

2. We are also going to contribute to a solo 401K plan as soon as his business makes a profit (I understand that is required). So any chance, we can seperate IRAs for past roll-over, current after tax contribution (using my income), and any future DH's business earning... or all three types of fund will be mingled together into one big traditional IRA?

Thank you for your help!
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 4:46 pm

Re: deal with after tax IRA

Post by tfb »

Make the non-deducible contributions until he has a solo 401k. Then rollover the pre-tax money (including earnings on non-deducible contributions) to the solo 401k. Convert the remainder to Roth. Basically a delayed backdoor Roth.
Harry Sit has left the forums.
Topic Author
liuruyu
Posts: 32
Joined: Thu Jul 26, 2012 1:20 pm

Re: deal with after tax IRA

Post by liuruyu »

Thx!

Can we just set up a solo 401K for him now and roll the current IRA in? Can we open a solo 401K this year even he won't be contributing to it, and just use it for roll-over? That way, we can do the backdoor roth this year, instead of delaying it.
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 4:46 pm

Re: deal with after tax IRA

Post by tfb »

Yes but I would still wait to make it cleaner. Having the money stay as non-deducible in a traditional IRA for a couple of years won't kill you.
Harry Sit has left the forums.
Topic Author
liuruyu
Posts: 32
Joined: Thu Jul 26, 2012 1:20 pm

Re: deal with after tax IRA

Post by liuruyu »

thank you for your help!
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: deal with after tax IRA

Post by retiredjg »

This is a good idea, but you probably won't be able to use Vanguard for the solo 401k - as I understand it, they will not accept rollovers from IRA. But Fidelity does.
Topic Author
liuruyu
Posts: 32
Joined: Thu Jul 26, 2012 1:20 pm

Re: deal with after tax IRA

Post by liuruyu »

yes, I talked to Vanguard, they will not take roll-over in solo 401K... yes, I read somewhere that Fidelity will do it. I will have to look into that. That will involve to roll my Vanguard IRA into Fidelity IRA and then from there roll into the solo 401K.
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: deal with after tax IRA

Post by Default User BR »

liuruyu wrote:That will involve to roll my Vanguard IRA into Fidelity IRA and then from there roll into the solo 401K.
Are you sure that first step is necessary? I would think that they could do a direct rollover regardless of the source.


Brian
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 4:46 pm

Re: deal with after tax IRA

Post by tfb »

Default User BR wrote:
liuruyu wrote:That will involve to roll my Vanguard IRA into Fidelity IRA and then from there roll into the solo 401K.
Are you sure that first step is necessary? I would think that they could do a direct rollover regardless of the source.


Brian
It's necessary if you want to keep the same assets and transfer in-kind. It's more of a system limitation than a legal requirement.
Harry Sit has left the forums.
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: deal with after tax IRA

Post by Default User BR »

tfb wrote:It's necessary if you want to keep the same assets and transfer in-kind. It's more of a system limitation than a legal requirement.
Ah, yes. That would make a difference.


Brian
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: deal with after tax IRA

Post by retiredjg »

But why would you want to keep the same investments rather than switch to Spartan funds?
Post Reply