Question Re: Backdoor Roth w/ 2012 and 2013 Contributions

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Question Re: Backdoor Roth w/ 2012 and 2013 Contributions

Postby fitzroymac » Wed Jan 09, 2013 5:19 pm

My wife and I contributed $5,000 each in the 2012 contribution year to our Roth IRAs. Due to unforeseen circumstances, we now exceed the 2012 Roth contribution limits. Therefore, with the help of information on this board, I have successfully recharacterized the 2012 contributions to Traditional IRAs, which had no prior balance. So far so good.

Now, I want to convert the TIRAs to Roth, but I also want to make new IRA contributions for 2013 and get them into Roth one way or another. The problem is that we don't know whether we'll be over or under the Roth contribution limits for 2013, but it's likely we'll be over again.

Therefore, I'm wondering if there's any disadvantage to adding $5,500 in non-deductible 2013 contributions to each TIRA (which currently include the recharacterized 2012 contributions) and then converting the TIRAs (each including 2012 and 2013 non-deductible money) to Roth.

This seems to me to be the simplest option. I suppose that the only IRS implication will be to file Forms 8606 regarding the non-deductible TIRA contributions for 2012 and 2013, correct?

Thanks in advance for your time and thoughts on this. I read a number of previous threads but didn't find anything addressing this exact situation. Please let me know if I omitted anything of importance from my explanation.

Thanks!
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Re: Question Re: Backdoor Roth w/ 2012 and 2013 Contribution

Postby bUU » Wed Jan 09, 2013 6:34 pm

As long as you have no pre-tax contributions in tIRAs, my understanding is that the Backdoor Roth is just as good as making a direct Roth IRA contribution if you were so eligible.
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Re: Question Re: Backdoor Roth w/ 2012 and 2013 Contribution

Postby Alan S. » Wed Jan 09, 2013 7:14 pm

You can do as you planned and won't have to worry about how high your income is in 2013. When you convert, any earnings in the recharacterized contribution will be taxable (the amount your recharacterization transfer exceeded your original contribution).

You will then have a single conversion to report for 2013. If your conversion includes taxable income of $200 for example, and you need to take Roth distributions from this conversion before 5 years have passed, the first $200 out is deemed to be the taxable portion of your conversion and will be subject to a 10% penalty unless you reach 59.5 first. The rest of the conversion was not taxable and will not have a penalty.

That's the only difference vrs being able to make a regular Roth contribution in the first place, ie a possible 10% penalty on the taxable amount if you don't hold the conversion 5 years. You will report the 2013 conversion on Form 8606, the same form (different section) used to report the non deductible TIRA contribution. A separate 8606 is required for each spouse.
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Re: Question Re: Backdoor Roth w/ 2012 and 2013 Contribution

Postby fitzroymac » Wed Jan 09, 2013 9:17 pm

That's great. Thanks very much for your insight. This is what I am going to do.
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Re: Question Re: Backdoor Roth w/ 2012 and 2013 Contribution

Postby RandyAdams1978 » Sun Jan 27, 2013 7:31 am

by Alan S.
A separate 8606 is required for each spouse.


How many spouses do you figure he has?
Sorry. Couldn't resist.

Actually, I wanted to thank you, Alan, for the explanation. I had googled my situation --- which was similar to fitz's --- and a Wikipedia entry made the top of the list. It said the same thing you did, but not as detailed. I was just about to do my standard Boglehead site seach on Google for confirmation of the Wikipedia info --- site:Bogleheads.org search_term(s) --- when I noticed that this thread came up second on the google return list.

I was looking for disadvantages to a backdoor Roth. I wanted to get my mAGI to 170,000. I'm figuring that without any finagling, our mAGI is going to fall in the 190-200K range for 2013. I was going to follow the suggestion from another poster here, whereby my wife would contribute ALL of her 2013 salary to her 401k, and I would cut her a check for that. She made about 20K in 2012 (she works outside the home part-time --- very full-time inside the home), and will probably make a similar amount this year. Maybe a bit more. I was trying to figure out if it was worth the effort. It still may be, but knowing I can still do a backdoor Roth without any grave consequences muddies the waters a little less.

Thanks.
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