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David_w

Originally I didn't tell him about the contribution. Then I told him and he amended the return with a Form 8606. This is a good sign. I neglected to tell him about the small balance and line 6 is empty. I will let him know. He knew how to handle everything I guess I just didn't give him all the info he needed due to my ignorance. You are getting ahead of yourself here or I'm thinking about the wrong year's return. The conversion didn't happen until 2022. Conversions are documented on the tax year in which the conversion was done. So the conversion and the $12 on line 6 don't go into your return until 2022. Has your accountant done your 2022 taxes already? Maybe I keep mixing things up. The contribution was done in 2021 for 2021. Don't reca...

David_w

We Bogleheads extoll the benefits of the back door Roth process, but the forum is rife with posts from people who have run into issues with it. It makes me question whether the benefits justify the potential pitfalls of the process… I suppose it depends too some degree on how many years one is able to make that back door contribution. I completely disagree with your post. The forum is rife with people who have run into issues with it because they fail to understand the concepts. The concepts are absolutely simple to understand, if you put your mind to it. Maybe one of these two explanations (or both taken together) will help? Explanation one Explanation two I agree with you. Retiredjg Took the time (much appreciated) to explain thoroughly ...

David_w

Ok. There is no way to know what, if anything, your accountant will know about how to file this. Many have no idea what "backdoor Roth" is and some of those do not want to be "instructed" by their clients. The fact that there was some balance left in tIRA at the end of the year means that some of your backdoor Roth maneuver will be taxable. Just a small amount since very little was left in the IRA. Your accountant already knows (I assume) that the non-deductible contribution was made for 2021. You have the 2021 8606 that documents that. Be sure the accountant learns or remembers about that contribution. Tell the accountant that you did a Roth conversion of $6,000 on _____ whatever date it was and tie that into the 1099 ...

David_w

I'm curious if your account was managed by Fidelity or did you do your own investing?

David_w

I keep my cash in Fidelity FZDXX money market fund and in short term T-bills. I have a ladder of 4 week, 8 week and about 12 weeks. This is good for me for now as long as interest rates remain "high" or keep going up.
Depending on how much you need liquid to pay your expenses I would keep that amount in short term T-Bills or a money market and the rest in a longer term CD or T-Bill to lock in a decent interest rate

David_w

I keep my cash in Fidelity FZDXX money market fund and in short term T-bills. I have a ladder of 4 week, 8 week and about 12 weeks. This is good for me for now as long as interest rates remain "high" or keep going up.
Depending on how much you need liquid to pay your expenses I would keep that amount in short term T-Bills or a money market and the rest in a longer term CD or T-Bill to lock in a decent interest rate

David_w

See replies in red immediately below your questions. Thank you.

retiredjg wrote: ↑Sun Mar 05, 2023 8:35 am Let's confirm some things.

You have only one traditional IRA.
Correct

You opened it in 2021 but did not put any money in it.
Correct

In 2022, you put in $6,000 as a 2021 IRA contribution.
Correct

In 2022, after it had grown a little bit, you converted $6,000 to Roth, leaving the earnings in the tIRA.

Correct, the earning was interest from being in core account.

Are all of those statements correct?
Yes

At the end of 2022, what was the balance of the tIRA?
$12.26 balance from year end statement

What is the balance of your IRA now?
$12.34

Have you done your 2022 taxes yet?
No

How do you do your taxes? Accountant

David_w

Looks like you have some fixing to do. :( It appears you made a 2021 contribution to IRA in 2022. That part is OK. That contribution should have been documented on Form 8606 with your 2021 taxes. I think you are saying you did that. A Roth conversion of $6000 apparently happened in 2022 but you did not convert the entire traditional IRA. In that case, there was a balance in traditional IRA at the end of 2022. How much did you have in traditional IRA at the end of 2022? (This includes SEP IRA, SIMPLE IRA, and rollover IRA.) This means your 2022 Roth conversion will have to be pro-rated with the rest of your tIRA. That will make some of your Roth conversion taxable and it will leave some "basis" (non-deductible contribution) in you...

David_w

I believe you have misunderstood the backdoor Roth process. Putting a contribution into a separate IRA does not let you avoid pro-rating a Roth conversion with all the money that you have in traditional IRA (including SEP IRA, SIMPLE IRA, and rollover IRA). It's unclear just what you did in 2022 although I'm pretty sure there is a problem that needs to be corrected or addressed on your 2022 tax return. Can you describe what you did without using the word "backdoor"? This was for 2021 though I planned on doing the same for 2022. Prior to April 2022, there was a $6,000 non deductible contribution made for 2021 to a traditional IRA (There was a from 8606 filed with the tax return). This IRA had previous investments in it. The 2021 c...

David_w

If a Backdoor Roth conversion was done in 2022 with a non deductible Traditional contribution, can a 2022 non deductible contribution still be made to a Traditional IRA for 2022 tax year? Then that contribution would be converted this year. The way I am reading it, what you did in 2022 was a "standard" Roth conversion of a traditional non-deductible IRA , which did not include a 2022 contribution. If that is correct, yes, you can make a 2022 non deductible contribution (by tax date, April 2023) then convert it to Roth IRA (this is the "backdoor"). In addition, you can also make a 2023 non deductible contribution and convert it to Roth IRA as well. To avoid complications, just make sure that on 12/31/2023 you do not have...

David_w

If a Backdoor Roth conversion was done in 2022 with a non deductible Traditional contribution, can a 2022 non deductible contribution still be made to a Traditional IRA for 2022 tax year? Then that contribution would be converted this year. The way I am reading it, what you did in 2022 was a "standard" Roth conversion of a traditional non-deductible IRA , which did not include a 2022 contribution. If that is correct, yes, you can make a 2022 non deductible contribution (by tax date, April 2023) then convert it to Roth IRA (this is the "backdoor"). In addition, you can also make a 2023 non deductible contribution and convert it to Roth IRA as well. To avoid complications, just make sure that on 12/31/2023 you do not have...

David_w

If a Backdoor Roth conversion was done in 2022 with a non deductible Traditional contribution, can a 2022 non deductible contribution still be made to a Traditional IRA for 2022 tax year? Then that contribution would be converted this year.

David_w

smooth_rough wrote: ↑Wed Feb 15, 2023 7:33 am Is your tax backet lower now than what you believe it will be in the future? If yes, it might make sense to take the cap gains tax now and get it over with, rather than later. I don't have strong opinion about the fidelity fund. You might want to check out Vanguard Tax Managed Capital Appreciation Fund Admiral. It has lower fees.

It is not a fund, it is a "Separately Managed Account" (SMA). I am 61 now and my income will be lower when I retire (whenever that is). Not sure what the capital gains are on that portion of the portfolio. I'll have to see if they have it separated out by SMA and the rest of the portfolio. They are together as one managed account

David_w

ClaycordJCA wrote: ↑Tue Feb 14, 2023 11:02 pm My then 92 year old father father was supposedly in a tax managed Fidelity account during 2021. 25+ positions and Fidelity kept trading in and out of positions every month even though the market kept rising. He ended up with over $70,000 in realized capital gains that year, all of which could have been avoided by buying and holding Fidelity’s total stock market index fund. We didn’t give Fidelity the opportunity to tax loss harvest in 2022.

I've been in this for a few years now and have somewhere between 100 to 200 individual stocks. I have no idea how I would get out

David_w

So I'm one of those who has part of their managed accounts in a Fidelity tax SMA. I see on my account they tell me for 2022 I have a
ESTIMATED TAX SAVINGS
$14,019.24

From 01/01/2022 to 12/31/2022
Harvested tax losses: $43,984.82

So they took losses of $43,984.82 just so I could save $14K

David_w

Hello everyone looking to park an emergency fund in a higher interest account than what it is in now i.e my chase account. I am a novice and have been looking on nerdwallet to see the rates and WOW!! have I been getting screwed. Can anyone suggest a good HYSA or am I better off with the vanguard account. Remember I am a novice but willing to learn to earn so you can flame me but be gentle lol>Thank you. For HYSA I have used American Express Bank, Marcus Bank, Ally Bank. No issues with any of them and generally they are all about the same interest. I have taken most of my cash out of those and purchased T-Bills using Fidelity which are paying about 1% higher than the banks. I also have some cash in a Fidelity money market fund earning over ...

David_w

increment wrote: ↑Tue Feb 14, 2023 9:06 am
UpperNwGuy wrote: ↑Tue Feb 14, 2023 7:23 am Is SPRXX pure treasuries, or does it also contain repos?
Looks like SPRXX is about 46% repurchase agreements. And 1% Treasurys. It's not meant to be a government or Treasury fund at all.

For (mostly) Treasurys, you want Fidelity Treasury Only Money Market Fund (FDLXX).

Why does it matter what the makeup is of each?

David_w

SPRXX currently about 4.1%. Search their site to compare.

David_w

Wife and I have several insurance policies of different types. I regret not getting larger Universal life policies when I was your age. You never really know how long you will need life insurance for. What if one of your kids (G-d forbid) has some sort of disability and may mot be able to earn a lot of money? You will want to provide for them when you are gone. What if your lifestyle increases and you need longer coverage? I would at least get a quote on Universal.

We got a few $500K universal policies with the plan of as we reach certain financial milestones drooping the off 1 by one. I am 61 & wife is 57, we still have them all plus some 20 year term.

David_w

ABLE accounts are great, have one for my son. As you point out they have limited contributions per year. If you don't have an employer sponsored retirement account you can contribute an additional $12,880 per year on top of the $16,000. In Florida but not all states, there is no Medicaid payback from the ABLE account. You may want to search for any states that allow non residents to open an account and don't have Medicaid payback.

As far as investing in the trust I am sure you're aware I believe the tax rate is 37%. I am not certain but I think that distributions of trust earnings made to you are taxable at your personal rate and not the trusts.

Is your trust a 1st party or 3rd party?

David_w

muffins14 wrote: ↑Mon Feb 06, 2023 8:01 am
lakpr wrote: ↑Mon Feb 06, 2023 7:58 am There is no reason, if you have the ability, to contribute to BOTH at the same time.

I would advise doing both if you can afford it. The end result is more money in Roth IRA. No reason to only choose one option if you have the money

Couldn't do both, it is one or the other so wondering if either has an advantage or disadvantage.

David_w

I think what you are saying is that your employer allows after-tax contributions beyond the $22,500 (or $30,000 for folks age 50 or over) limit in your 401(k) plan. In other words, Mega-Backdoor Roth That is NOT a contribution to Roth 401(k). You must convert those after-tax contributions to Roth 401(k) within the plan; this is a manual step that is required. Some plans would allow the automation of immediate conversion of the after-tax contributions to Roth, thus the intermediate step of contributions remaining in the after-tax sub account is invisible to you, but not all plans do. Find out which process that your specific plan follows. To answer the question in the title of this thread, the MBDR and BDR are two different animals altogeth...

David_w

I hope I am wording this correctly.

Is there any advantage / disadvantage of making an after tax contribution to a Roth 401K (after contributing your limit) vs making a nondeductible contribution to a traditional IRA and then converting to a Roth? Income won't allow for a direct contribution to a Roth IRA. Employer does allow for this type of in-plan contributions to a Roth.

David_w

I recently started buying t bills via Fidelity. It's really easy. Call them and they will help you, that is what I do. I bought 4wwek, 8 week and 12 or 13 week maturity. They email you when they are coming due, then I call and buy another 12 week maturity. Then yo have them coming due every 4 weeks.

David_w

I have $5 million umbrella policy and pay $2,300 for it. No retainers.

David_w

Do you buy condos, single family homes etc as an investment? I am considering buying some single family homes (pay cash) to have a some diversified source of income when I retire. If you do my question is, is there a certain return you look for from the rent alone that you won't go below on a deal?

One I am looking at now is asking $239K and I figure after expenses I will net about $858 per month ($10,296/year) (4.3%)

Not asking about REITS or other funds dealing with real estate, direct purchase and ownership.

David_w

Gaston wrote: ↑Thu Feb 02, 2023 12:33 am
MikeG62 wrote: ↑Sat Nov 21, 2020 8:03 am The big issue for me (aside from the annual fees) is even if the strategy does well, you will be handcuffed into this fee-based structure forever - unless you are willing to pay the taxes to close it out and reinvest the proceeds (or move the positions to a brokerage account and manage them yourself - no thanks).
+1.

This is my issue. I let them put part of my portfolio in a tax managed SMA and while I have no plans to get out of Fidelity it's always in the back of my mind that I am trapped

David_w

Thanks all. I put a freeze with all 3 credit reporting agencies and signed up for a few more free services (Chase, Credit Karma, Amex). Now I just have to work on getting this fraudulent account taken care of. I filed a dispute with Experian but also contacted the company directly. They said to file and send them a police report and an FTC report and then they will check into it. I appreciate all the suggestions. There are many different venues for relief that may be available to you, where you may be able to get professional assistance for free. Many offer reimbursement for oop expenses (and sometimes even time spent) for identity theft. Check your Homeowners insurance (be careful about this, I'd probably keep this as a last resort) Credi...

David_w

Thanks all. I put a freeze with all 3 credit reporting agencies and signed up for a few more free services (Chase, Credit Karma, Amex). Now I just have to work on getting this fraudulent account taken care of. I filed a dispute with Experian but also contacted the company directly. They said to file and send them a police report and an FTC report and then they will check into it. I appreciate all the suggestions.

David_w

jebmke wrote: ↑Sun Jan 22, 2023 11:31 am I don't monitor but I have locked my credit with the credit agencies. If your credit is locked, I'm not sure you need a monitoring service.

In my business I have had someone who opened a credit card in my business name and when I called the company they never did a credit check or any sort of check they said.

David_w

I just realized someone had opened a credit card in my name and missed 2 payments. I am wondering who ya'll use as credit monitoring service that will notify you when new accounts are opened, payments are missed and other protections. I have a free service through AAA who I believe goes through Experian but I guess they were slow to notify

David_w

celia wrote: ↑Fri Jan 20, 2023 8:19 pm Yes, possible, but unlikely.

There was something about the information being incomplete that told me something doesn’t sound right. Hopefully, we’ll soon find out more. We’ve also seen that many people do not really know what tax bracket they are in. That’s a common error for newbies.

On a summary sheet from our accountant of 2021 taxes it states:
"Tax Bracket 37%"
"Effective Tax Rate 26.02%"

Our taxable income for 2022 is going to be slightly under 7 figures I believe

David_w

I think what you are telling me is that neither of you has a retirement plan at work (no 401k, no 403b, no 457b, no SEP or SIMPLE IRA, and no pension, etc.). If that is the case, your contributions to tIRA are deductible, in spite of the high income. That would explain your original post (which was a bit baffling). In the 37% tax bracket, you need to take advantage of as large a deductible contribution as you can. You should NOT convert anything to Roth IRA in the 37% tax bracket. If you are self employed, you probably should open some kind of self employment retirement plan. Does that seem like something you could do? Or are you W-2 employees of some company that offers no benefits? Correct, no other plan at work I own the S corporation. ...

David_w

David_w ’s last post threw me for a loop since it looked like he was quoting something that retiredjg said that I couldn’t see. Instead David_w was putting his answers in Retiredjg’s quote box. Apparently, it should have read: Do you know your current tax bracket? 37% Tax bracket Have any idea when you will retire? I really don't, maybe 65, 67? Not sure. If you do Roth conversions, you will need to pro-rate the the conversions based on the amount of pre-tax vs post-tax money that is in the IRA. That is why you must know (and document) your non-deductible contributions I looked back on our taxes and our contributions were all deducted on our taxes, they were not non-deductible contributions. Neither of us have any other retirement plans. Wi...

David_w

retiredjg wrote: ↑Fri Jan 20, 2023 3:59 pm
Do you know your current tax bracket?
37% Tax bracket

Have any idea when you will retire?
I really don't, maybe 65, 67? Not sure.

If you do Roth conversions, you will need to pro-rate the the conversions based on the amount of pre-tax vs post-tax money that is in the IRA. That is why you must know (and document) your non-deductible contributions.

I looked back on our taxes and our contributions were all deducted on our taxes, they were not non-deductible contributions. Neither of us have any other retirement plans.

David_w

I just bought a sizeable amount of 4 week, 8 week and 12 week bills. Is there any danger of me losing my money?

Do you think people can lose money as it gets closer to June?

David_w

I am 61 and my wife is 57. We each have about the same IRA values: Roth IRA $50K Traditional IRA $90K We do make a maximum contribution to our traditional each year (can't contribute to Roth). We do have sizeable taxable accounts which when the time comes will be what sustains us in retirement. We pay an awful lot in income taxes now so I can't imagine that a deduction of $7,000 would make much of a difference. The questions are: 1) Does it make sense for us to contribute to the traditional and then convert that to out Roth? I imagine these IRA's would be left to our kids. 2) If we do convert, do we need to open a new traditional and then convert or can we just convert the newly contributed amount from our existing traditional IRA's?

David_w

I have a special needs trust set up for my 19 yr old son. I made the mistake of starting to fund and then invest it. What I should have done is set up a sperate investment account in my name with the trust as the beneficiary so he gets the step up. I am now going to open an ABLE account for him. The trust can make contributions to the ABLE. My question is, should I start selling some if the investments below and then transferring cash to the ABLE account? Or not a good idea because we have losses? I do have cash in another trust bank account we can start to contribute with and then invest. Fidelity Blue Chip Total Loss $4,512 Total Value $10,237 Fidelity Total Market, Total Loss $4,089 Total Value $46,743 QQQ Total Loss $754 Total value $5...

David_w

He is not currently working. The total amount that can go into an ABLE account from all sources (aside from the working contribution you mentioned) is $16K including the SNT. My initial though was since the account grows and is used all tax free on gains, I am better off slowly getting money currently invested out of the SNT and into the ABLE account. I guess now that there are losses and as you both said I am buying at a low price now is a good time to start. If you or anyone else who may be in a similar situation are curious, here are the different investment options: https://www.ableunited.com/save/investment-options/ thanks. the only comparable fund in the ABLE to what you have in SNT is the US stock fund. So just use that if you're go...

David_w

If you invest the ABLE money in a roughly equivalent investment choice, you will be selling low but buying low, so it mostly nets out. It will depend on which ABLE program you selected, but there are usually choices like “Aggressive”, “Moderate”, etc. Since it looks like you are 100% equity in the SNT, you’d probably go with an Aggressive option if that meets your goals. Or does it make more sense to not take a loss and invest new funds from the trust bank account into the ABLE account? 1. is your son working? Reason I ask is it looks like there's a $16,000 limit to ABLE but if employed can contribute more. 2. can the transfers from SNT to ABLE exceed the yearly $16,000 a year contributed to ABLE or are transfers from SNT limited to $16k/y...

David_w

Kenkat wrote: ↑Sun Dec 25, 2022 6:37 pm If you invest the ABLE money in a roughly equivalent investment choice, you will be selling low but buying low, so it mostly nets out. It will depend on which ABLE program you selected, but there are usually choices like “Aggressive”, “Moderate”, etc. Since it looks like you are 100% equity in the SNT, you’d probably go with an Aggressive option if that meets your goals.

Or does it make more sense to not take a loss and invest new funds from the trust bank account into the ABLE account?

David_w

I have a special needs trust set up for my 19 yr old son. I made the mistake of starting to fund and then invest it. What I should have done is set up a sperate investment account in my name with the trust as the beneficiary so he gets the step up. I am now going to open an ABLE account for him. The trust can make contributions to the ABLE. My question is, should I start selling some if the investments below and then transferring cash to the ABLE account? Or not a good idea because we have losses? I do have cash in another trust bank account we can start to contribute with and then invest. Fidelity Blue Chip Total Loss $4,512 Total Value $10,237 Fidelity Total Market, Total Loss $4,089 Total Value $46,743 QQQ Total Loss $754 Total value $5,...

David_w

Mel Lindauer wrote: ↑Sun Dec 25, 2022 2:32 pm
David_w wrote: ↑Sun Dec 25, 2022 1:34 pm I bought I Bonds for the last 2 years for my kids (19 yrs & 29 yrs). Does it make sense to hold them and add to them every year? Does thier age play into this at all?
Yes, their ages can make a difference. The 29-year-old would be able to use the I Bonds, tax-free, for their children's (your grandchildren's) qualifying educational expenses. Since the named owner must be at least 24 years of age when the bonds were purchased (not when they're used) to qualify, the 19-year-old wouldn't be eligible for this benefit.

Thanks. Currently even if the older one had kids I think he would be excluded from this due to modified adjusted income

David_w

JBTX wrote: ↑Sat Dec 24, 2022 10:38 am I can’t think of any reason. Only indirectly if spending on a credit card displaces cash spending and you end up with $2000 cash accumulated and credit card balances (I’m not sure what the SSI assumption is on that, if the $2000 is considered on a net cash basis excluding liabilities)

You can still make him an authorized user on your card and it will help his credit history and rating. I think AMEX bluecash actually allows you to set balance limits on the authorized user.

We have him as an authorized user on our Amex Gold. He ran into a situation the other day wherever he was they did not take Amex so I wanted to get a Visa card and figured instead of being authorized on ours I would get him his own.

David_w

I bought I Bonds for the last 2 years for my kids (19 yrs & 29 yrs). Does it make sense to hold them and add to them every year? Does thier age play into this at all?

David_w

I don't want to jeopardize SSI. Things are just starting to get very confusing to me between a special needs trust, ABLE account and SSI and what can money be used for, keeping track, making sure not to jeopardize anything etc I would first start by understanding which source of income is supposed to be used for each kind of expense and which sources of money need "proof" that the money was spent properly. I agree that this is confusing at the beginning but you could lose the benefit if you don't follow their rules. Whether he uses a credit card or cash, he will likely also have to save all the receipts. And I don't think you meant he would use the credit card to get cash as the credit card fees for cash are not worth it. But he ...

David_w

We have held the Fidelity tax advantaged SMA for 3 years. Here are the results: - three years through 7/31 the account is up 45.43% (after fee), S&P 500 is up 45.66% both pre tax, - it has averaged roughly 4% annually in net tax losses (losses minus gains), more in volatile years and less in others, - as to schedule B, yes there are a lot of holdings and cap gains/losses. If you don’t use Turbo Tax, etc and download the data at tax time it could be a bear. I do use TT and there’s no more work with this than just downloading divs and interest, - a concern could be what happens when you close the account. The SMA agreement is clear that Fidelity will request your decision on transferring the holdings in kind back to your account or selli...

David_w

My 19 yr old was recently approved for SSI benefits. I wanted him to have a credit card for emergencies or if he finds himself short on cash. Is there any drawback to him having a credit card in his own name as opposed to being an additional user on mine?

Consider before answering:
He will be approved
He is very responsible and wouldn't abuse it

So, is it better to have him as an additional user or have his own. I don't want to jeopardize SSI.
Things are just starting to get very confusing to me between a special needs trust, ABLE account and SSI and what can money be used for, keeping track, making sure not to jeopardize anything etc

David_w

Yes, he made to much to continue making Roth contributions so 2021 he set up a traditional and made a contribution. Currently just sitting in cash. So there should be no income tax to be paid on the conversion since there was not deduction correct? Partially correct :wink: Correct that there is no income tax to be paid on the money he converts that was the amount originally contributed to the tIRA and not deducted - because taxes were already paid on that amount when your son contributed the money to his tIRA and did not deduct it from his taxes. Those taxes are paid and done with and no more tax is due on that money when he converts it to the Roth. However, any money that he converts that is more than the already taxed tIRA contribution a...

David_w

@FiveK I have no idea what a draft of his 8606 will look like. Didn't even know what it was till I just looked it up. Knowing that is the first step toward answering Can one contribute though non deductible and then convert to a Roth and not pay tax when withdrawn in retirement? because it will reveal how much of the conversion is taxable vs. non-taxable. Then the Treatment of distributions table covers withdrawals. Thanks for trying, I don't understand the table. He made a 2021 contribution to traditional IRA with no deduction. He converted it this week to his existing Roth. This information partially changes what I said above and the process may now be more complicated. Or not. The 2021 contribution should have been documented on his 202...

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