Backdoor Roth + 401k + Defined Benefit Plan OK?

[Average Investor]

I would like to open a Roth IRA this year. I am over the income limit for a deductible contribution so I am planning to do a Backdoor Roth. I do not have any IRAs currently and I understand the mechanics of setting this up (thanks TFB). A few questions:

Do I need to set up the Traditional IRA and convert to the Roth IRA before the end of 2012?

Will the nondeductible contribution to the Traditional IRA and the conversion to Roth have any effect on my ability to make maximum salary deferrals for my sCorp 401k and Defined Benefit Plans?

Thank you.

[dhodson]

i have a 401k and DB and was told that i could (im a s corp and only employee). I chose not to do it bc saving for retirement isnt my only goal and i felt i had enough stocks/bonds with the 401k and DB. I assume you have an accountant and a plan administrator for the combo DB and 401k. They should be able to provide you an official answer and given the extra costs of these plans they should provide that type of service.

[Default User BR]

I would like to open a Roth IRA this year. I am over the income limit for a deductible contribution so I am planning to do a Backdoor Roth.

This is somewhat confusing. The limits for deductible traditional IRA contributions and Roth contributions are different. The fact that you can't make the first doesn't mean that you can't do the second. What is your MAGI for 2012 going to be?


Brian

[Average Investor]

Thanks for the replies.

Sent a message to my accountant have not heard back yet.

2012 MAGI estimated in the $150k range.

Thank you.

[Default User BR]

2012 MAGI estimated in the $150k range.

Assuming you are filing single, then yes backdoor would be in order. Generally speaking, IRA and 401(k) contributions don't intersect. You should have no trouble doing a conversion. There is no need to do it before 12/31 specifically. The contribution deadline is normal tax day, 4/15 in 2013. You can do the conversion anytime after the contribution. All that changes is which year's form records the conversion and any tax paid (hopefully zero).

It would probably be more convenient to do both 2012 and 2013 contributions early next year, then convert both at that time.


Brian

[itworks]

Re:

Do I need to set up the Traditional IRA and convert to the Roth IRA before the end of 2012?

I also wanted to do a back door Roth IRA conversion. I just called Vanguard about 20 min ago, and the customer service explicitly told me the "conversion" is "calendar year" event, while "contribution" is "tax deadline event"; hence, she urged me to place an order before 4PM eastern time next Monday (12/31).

So I am confused. Assuming I make $5000 contribution in Feb. 2013 for year 2012, and then do a conversation:
1. in Mar. 2013, is that $5000 go into year 2012 or 2013?
or
2. in Jun. 2013, is that $5000 go into year 2012 or 2013?

[retiredjg]

I also wanted to do a back door Roth IRA conversion. I just called Vanguard about 20 min ago, and the customer service explicitly told me the "conversion" is "calendar year" event, while "contribution" is "tax deadline event";

This is true. But the tax deadline for a 2012 contribution is not 12/31. It is tax day (on or around 4/15) of the next year.

hence, she urged me to place an order before 4PM eastern time next Monday (12/31).

An order for what? A contribution or a conversion?

So I am confused. Assuming I make $5000 contribution in Feb. 2013 for year 2012

...then your contribution is for the year 2012 if you specified it was for 2012. The conversion will be reported with your tax return for 2013 (which is filed in 2014).

It is not important if the contribution and conversion happen in the same year. In fact, you could make contributions for several years and only do one conversion. But we don't recommend that because your money might grow during that time, causing you to have to pay taxes on the earnings.

[Default User BR]

It is not important if the contribution and conversion happen in the same year. In fact, you could make contributions for several years and only do one conversion. But we don't recommend that because your money might grow during that time, causing you to have to pay taxes on the earnings.

I would recommend doing 2012 and 2013 at the same time, as you can make the contribution on the same day, and the conversion after. One would still need to fill out Form 8606 twice, once for 2012 to record the non-deductible contribution and one for 2013 doing that and the conversion.


Brian

[retiredjg]

It is not important if the contribution and conversion happen in the same year. In fact, you could make contributions for several years and only do one conversion. But we don't recommend that because your money might grow during that time, causing you to have to pay taxes on the earnings.

I would recommend doing 2012 and 2013 at the same time, as you can make the contribution on the same day, and the conversion after. One would still need to fill out Form 8606 twice, once for 2012 to record the non-deductible contribution and one for 2013 doing that and the conversion.

I think so too, if the money is available.

[JW Nearly Retired]

I didn't see any confirmation that you are single? If married, the Roth contribution phase out range is $173k-$183k so you could do a direct Roth payment with a $150K MAGI.
JW

[EmergDoc]

I do all 3. No problems.

You have until April to do a 2012 Backdoor Roth IRA.

[Average Investor]

Assuming you are filing single, then yes backdoor would be in order. Generally speaking, IRA and 401(k) contributions don't intersect. You should have no trouble doing a conversion. There is no need to do it before 12/31 specifically. The contribution deadline is normal tax day, 4/15 in 2013. You can do the conversion anytime after the contribution. All that changes is which year's form records the conversion and any tax paid (hopefully zero).

Thanks all for for your help.

I set up and funded the tIRA yesterday. Set up the Roth today. To do the conversion do I simply exchange $5000 worth of shares from the tIRA to the Roth?

BTW, I am filing single.

Thank you.

[Default User BR]

I set up and funded the tIRA yesterday. Set up the Roth today. To do the conversion do I simply exchange $5000 worth of shares from the tIRA to the Roth?

The procedure varies by custodian. Contact yours to find out.


Brian

[Average Investor]

The procedure varies by custodian. Contact yours to find out.

Thank you.

[retiredjg]

See if you can do it online. Go to your tIRA and look for "rollover" and then pick "to Roth IRA" .

When I did this at Vanguard a few years ago, it seems like it was a couple of clicks of the mouse and it was done.

[Average Investor]

See if you can do it online. Go to your tIRA and look for "rollover" and then pick "to Roth IRA" .

When I did this at Vanguard a few years ago, it seems like it was a couple of clicks of the mouse and it was done.

Thanks, Vanguard walked me through it, all I needed to do was exchange fund to fund.

Thanks for the help everyone and Happy New Year!