TIRAs or Backdoor Roths?

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BeaverFood
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Joined: Fri Jul 26, 2013 1:29 pm

TIRAs or Backdoor Roths?

Post by BeaverFood »

We currently live abroad and have no access to tax advantaged retirement accounts through work. We also exceed the Roth limits for 2013. All of our retirement funds are currently in 401ks with current/former employers from when we were in the States, so no IRA funds of any type. We will be opening TIRAs for us both before April and maxing those out and are also doing some taxable investing earmarked for retirement as a next best option. Due to the foreign earned income exclusion our taxable liability is fairly low, so I'm wondering if it makes sense to convert those TIRAs to backdoor Roths to give us tax free income in retirement. Does anyone have a good primer on when backdoor Roths do/do not make sense?

Thanks!
natureexplorer
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Joined: Thu Sep 03, 2009 10:52 am
Location: Houston

Re: TIRAs or Backdoor Roths?

Post by natureexplorer »

No need to use the backdoor if you can use the front door.
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BrandonBogle
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Re: TIRAs or Backdoor Roths?

Post by BrandonBogle »

I do not know how to answer whether the tIRA or Roth is your better choice, but I will add that your question really is a question of whether a Traditional or Roth is a better option -- nothing really to do with "backdoor Roths".
pingo
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Joined: Sat Sep 19, 2009 8:24 pm

Re: TIRAs or Backdoor Roths?

Post by pingo »

When we use "TIRA" around here, it typically refers to a deductible IRA.

I don't think it's possible to be eligible for a deductible TIRA and ineligible for a Roth IRA.

Do you mean that you are inelegible for a deductible IRA or a Roth IRA, and so you will be contributing to an IRA without taking a deduction ("non-deductible IRA") and you would like to know if you should contribute and then do a Roth conversion? That would be known as a Backdoor Roth.

I'm on a clunky smart phone right now so I can't add links, but search the forum Wiki for Backdoor Roth article, read it and also read The Finance Buff's article which is linked in the Wiki footnotes.
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retiredjg
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Re: TIRAs or Backdoor Roths?

Post by retiredjg »

I can't think of a situation where non-deductible tIRA is better than Roth IRA. In both cases, the money is taxed going in. In one case, the earnings are taxed coming out and in the other case, the earnings are not taxed coming out. What's not to like about not paying tax on the earnings?

That said, I don't know if your working abroad and/or the earned income exclusion affect your ability to do IRA of either type (although I suspect there might be a problem there). But if you find you can do either one, it seems prudent to me to do the back door contribution to Roth IRA (non-deducted contribution to tIRA which is then converted to Roth IRA).
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