I would say that Backdoor Roth IRA refers to the ongoing practice of funding a Roth IRA via the mechanism of Roth IRA conversion.BrianOB wrote:(3) Are these the same thing? If we convert it can we still contribute to it (post-tax) even though we exceed the income tax limits or is it just something you have to do every year? i.e. create a new TIRA, convert it to RIRA.
BrianOB wrote:(1) According to the BH wiki it looks like the Traditional IRA will be non-deductible due to the MAGI limits. The comparison table (for stocks) makes taxable investing look more favourable but we want to use it to hold exclusively Bonds (in which we are underweight). Is this a reasonable strategy?
(2) I didn't realise that anyone at any income level can convert a Traditional IRA to a Roth account now - should we? We don't plan to touch it before 59.5, plan to be retired by then and we also don't plan to leave anything behind (no heirs). We're also already in the top tax bracket so I don't see our tax bracket rising.
(3) Are these the same thing? If we convert it can we still contribute to it (post-tax) even though we exceed the income tax limits or is it just something you have to do every year? i.e. create a new TIRA, convert it to RIRA.
(4) If it's an entirely non-deductible Traditional IRA then are the withdrawals tax free, same as the Roth IRA?
(5) In short - Is a non-deductible Traditional IRA a sensible thing to own in our position?
BrianOB wrote:I do not have any IRA accounts in my name and no 401K.
livesoft wrote:I do not believe a non-deductible IRA is worth it for you even if you only put bond funds in the IRA. For it to be worth it, you need to convert it to Roth IRA at a lower tax rate, but that is not going to happen due to the rollover IRA.
If you need more bond assets than you can fit in your tax-advantaged accounts, then a tax-exempt muni bond fund is for you. I think you would be better off in a tax-exempt muni bond fund in a taxable account than you would putting that money in a non-deductible IRA.
FWIW, my spouse had a 401(k) at Hartford (blech!) and was able to roll it over to an IRA. We will not be doing any conversions to Roth IRA until we are in a low tax bracket. We will be in a low tax bracket when we retire early and before drawing SS benefits. During those years we will live off the money in our taxable accounts (remember those muni tax-exempt bond funds I mentioned above plus tax-efficient equity funds) while doing Roth conversions piecemeal on the side. The money withdrawn from our taxable accounts should be virtually tax-free.
Alan S. wrote:If you already have a basis in your TIRA as documented on Form 8606, there are only 3 ways to eliminate it:
1) With RMDs and other distributions over your entire remaining lifetime that drains the accounts while you are still alive
2) Converting the entire balance and paying taxes pro rate to eliminate your basis before you otherwise would under 1) above
3) Rolling your pre tax amount over to an accepting employer plan leaving behind only the 8606 recorded basis, which you then convert tax free.
3) is the only action you can take to eliminate the basis quickly and without current taxes. If you are not in a position to do this, you are stuck with the basis for quite awhile, and just live with it. If you don't make new contributions that add to basis or take distributions, there is no added work or reporting in any of those years or added costs, except possibly low balance IRA administration fees.
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