Backdoor Roth with duductible TIRA contributions?
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Backdoor Roth with duductible TIRA contributions?
Neither of us qualify for employer-sponsored retirement plans and we exceeded the Roth contribution limits for 2013 as a couple. Under the IRS rules, we could make tIRA contributions that were deductible, so we maxed those out. Every explanation I see about backdoor Roths starts with nondeductible tIRAs. How is the situation different if you have a deductible tIRA?
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Re: Backdoor Roth with duductible TIRA contributions?
It's much easier if the Traditional IRA contributions are deductible because there is no IRA basis and avoids the IRA prorata problem if you have other pre-tax IRA assets like a Rollover IRA.
If your $5,500 Traditional IRA contribution is deductible, you will have a $5,500 IRA deduction on line 32 of your 1040 form. You convert $5,500 to Roth IRA. The entire $5,500 conversion is taxable since you have no IRA basis and will show up on lines 15a and 15b of 1040 form. The $5,500 conversion income offsets the $5,500 Traditional IRA tax deduction.
If your $5,500 Traditional IRA contribution is deductible, you will have a $5,500 IRA deduction on line 32 of your 1040 form. You convert $5,500 to Roth IRA. The entire $5,500 conversion is taxable since you have no IRA basis and will show up on lines 15a and 15b of 1040 form. The $5,500 conversion income offsets the $5,500 Traditional IRA tax deduction.
Re: Backdoor Roth with duductible TIRA contributions?
If your traditional IRA contributions are deductible and you have high income, you probably don't want a backdoor Roth. Since you are likely to retire in a lower tax bracket, you get a better tax position by contributing to a deductible IRA and waiting to withdraw/convert until you are in a lower tax bracket.
If you become eligible for an employer plan in a later year and need to use the backdoor Roth IRA, you do retain the option of converting your traditional IRA to a Roth then (presumably, paying the tax from your large taxable account), or rolling it into your employer plan if the plan is decent and accepts rollovers.
If you become eligible for an employer plan in a later year and need to use the backdoor Roth IRA, you do retain the option of converting your traditional IRA to a Roth then (presumably, paying the tax from your large taxable account), or rolling it into your employer plan if the plan is decent and accepts rollovers.
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Re: Backdoor Roth with duductible TIRA contributions?
Here's a thread on backdoor Roths starting with deductible IRAs, but I don't think it has any relevance to expat Wisconsinites: http://www.bogleheads.org/forum/viewtop ... 10&t=86262BeaverFood wrote:Every explanation I see about backdoor Roths starts with nondeductible tIRAs.