Backdoor Roth to be safe?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Backdoor Roth to be safe?

Postby airahcaz » Mon Jul 01, 2013 8:20 pm

For a person who would like to invest $5500 now, but is not sure where 2013 AGI will be at the end of the year, should one just go through Backdoor Roth just to be safe, instead of directly to Roth?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
airahcaz
 
Posts: 850
Joined: 31 Oct 2009

Re: Backdoor Roth to be safe?

Postby Brian2d » Mon Jul 01, 2013 8:51 pm

that's what I did.
Brian2d
 
Posts: 144
Joined: 20 Jan 2011

Re: Backdoor Roth to be safe?

Postby mhc » Tue Jul 02, 2013 10:02 am

airahcaz wrote:For a person who would like to invest $5500 now, but is not sure where 2013 AGI will be at the end of the year, should one just go through Backdoor Roth just to be safe, instead of directly to Roth?


Yes. It is not difficult.
User avatar
mhc
 
Posts: 2210
Joined: 4 Apr 2011
Location: NoCo

Re: Backdoor Roth to be safe?

Postby airahcaz » Tue Jul 02, 2013 10:46 am

mhc wrote:
airahcaz wrote:For a person who would like to invest $5500 now, but is not sure where 2013 AGI will be at the end of the year, should one just go through Backdoor Roth just to be safe, instead of directly to Roth?


Yes. It is not difficult.


Not difficult as have done many times, but would hate to do unnecessarily. Guess no harm?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
airahcaz
 
Posts: 850
Joined: 31 Oct 2009

Re: Backdoor Roth to be safe?

Postby mhc » Tue Jul 02, 2013 11:49 am

There is no harm.

The downside of not doing the backdoor is having to undo your Roth contributions if your AGI is too high. I think that would be a much larger hassle than just doing the backdoor from the beginning.
User avatar
mhc
 
Posts: 2210
Joined: 4 Apr 2011
Location: NoCo

Re: Backdoor Roth to be safe?

Postby BigOilTexan » Tue Jul 02, 2013 12:13 pm

mhc wrote:There is no harm.

The downside of not doing the backdoor is having to undo your Roth contributions if your AGI is too high. I think that would be a much larger hassle than just doing the backdoor from the beginning.


See this article on how to recharacterize an IRA contribution (if you made a Roth contribution now and then needed to change it to a Traditional later in the year).
Peak oil is a myth perpetrated by those who dont believe in technological innovation.
User avatar
BigOilTexan
 
Posts: 67
Joined: 3 Apr 2012
Location: Houston, TX

Re: Backdoor Roth to be safe?

Postby airahcaz » Tue Jul 02, 2013 12:30 pm

BigOilTexan wrote:
mhc wrote:There is no harm.

The downside of not doing the backdoor is having to undo your Roth contributions if your AGI is too high. I think that would be a much larger hassle than just doing the backdoor from the beginning.


See this article on how to recharacterize an IRA contribution (if you made a Roth contribution now and then needed to change it to a Traditional later in the year).


Recharacterization seems more involved than simply doing back-door:


Taxpayers who recharacterize Roth conversions and IRA contributions are faced with the daunting task of calculating the earnings (or losses) on the amount, if such services are not provided by their IRA custodians. Proper calculation of the earnings/loss is as important as the recharacterization itself, and failure to include the correct amount could cause adverse consequences. Here we explain recharacterizations and help you understand the mechanics of calculating earnings or losses on the amounts you want to recharacterize
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
airahcaz
 
Posts: 850
Joined: 31 Oct 2009

Re: Backdoor Roth to be safe?

Postby BigOilTexan » Tue Jul 02, 2013 12:34 pm

But if you kept reading, you would see:

Calculation Not Required for Full Recharacterization
A calculation of earnings or loss is required only if a partial recharacterization is being done. In other words, if the full IRA balance is being recharacterized, then no calculation is required. For instance, assume you established a new Roth IRA and funded it with $3,000 in December 2011. By October 2012, the IRA earned $500, making the balance $3,500. In order to claim a deduction for the $3,000, you decide that you want to treat the amount as a traditional IRA contribution. Because the Roth IRA received no other contributions or made no distributions and because the IRA had no balance before the $3,000 contribution, you can simply recharacterize the full balance to the traditional IRA. The same rule applies if a full recharacterization of a Roth conversion is being done and no other distributions or transfers were made from or to the account.


Do you have an existing balance in a Roth IRA or would you be opening a new one?
Peak oil is a myth perpetrated by those who dont believe in technological innovation.
User avatar
BigOilTexan
 
Posts: 67
Joined: 3 Apr 2012
Location: Houston, TX

Re: Backdoor Roth to be safe?

Postby airahcaz » Tue Jul 02, 2013 12:41 pm

BigOilTexan wrote:But if you kept reading, you would see:

Calculation Not Required for Full Recharacterization
A calculation of earnings or loss is required only if a partial recharacterization is being done. In other words, if the full IRA balance is being recharacterized, then no calculation is required. For instance, assume you established a new Roth IRA and funded it with $3,000 in December 2011. By October 2012, the IRA earned $500, making the balance $3,500. In order to claim a deduction for the $3,000, you decide that you want to treat the amount as a traditional IRA contribution. Because the Roth IRA received no other contributions or made no distributions and because the IRA had no balance before the $3,000 contribution, you can simply recharacterize the full balance to the traditional IRA. The same rule applies if a full recharacterization of a Roth conversion is being done and no other distributions or transfers were made from or to the account.


Do you have an existing balance in a Roth IRA or would you be opening a new one?


Existing
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
airahcaz
 
Posts: 850
Joined: 31 Oct 2009

Re: Backdoor Roth to be safe?

Postby Epsilon Delta » Tue Jul 02, 2013 3:00 pm

airahcaz wrote:
BigOilTexan wrote:
Do you have an existing balance in a Roth IRA or would you be opening a new one?


Existing


You can, and should, open a new Roth even if you have an existing one. Recharacterization and corrective distributions are situations where you consider each Roth account separately, instead of lumping them all together.
User avatar
Epsilon Delta
 
Posts: 3065
Joined: 28 Apr 2011

Re: Backdoor Roth to be safe?

Postby airahcaz » Tue Jul 02, 2013 3:29 pm

Epsilon Delta wrote:
airahcaz wrote:
BigOilTexan wrote:
Do you have an existing balance in a Roth IRA or would you be opening a new one?


Existing


You can, and should, open a new Roth even if you have an existing one. Recharacterization and corrective distributions are situations where you consider each Roth account separately, instead of lumping them all together.


I rather avoid recharacterization and thus also avoid any need to open another account.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
airahcaz
 
Posts: 850
Joined: 31 Oct 2009


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: FAST Enterprise [Crawler], jms92, pjstack, thomase, Waterboy, Yahoo [Bot] and 30 guests

cron