Backdoor Roth Q <sorry for being slow on the uptake>

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primus
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Backdoor Roth Q <sorry for being slow on the uptake>

Post by primus » Tue Feb 26, 2013 1:19 am

I am sure this has been asked before and I can swear I've read it but can't seem to find it -

Backdoor Roth procedures <the way I understand it>

For 2012:
1. Open tRA (@Fidelity) & contribute $5k max to maybe an MMA fund
2. Open Roth IRA - nothing in it yet
3. Wait for a day and convert tRA to Roth - Guessing you can do all of this online

This is Account 1

For 2013:
Same steps above ($5,500 max). This will be Account 2 or can I consolidate to account 1?

Now, if I wanted to do this for my wife, I'll end-up with 4 different accounts??
Or can I consolidate all our accounts to 1 single Roth or maybe one each, for my wife & I?

Much thx!

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TomatoTomahto
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by TomatoTomahto » Tue Feb 26, 2013 8:30 am

I believe that you are correct. If you want to see "slow on the uptake," that would be me -- it took me a year to be convinced to do a backdoor.

I'm not sure of the legalities, but have never heard of a joint IRA. In any case, there's no cost in having additional accounts, and two of them are only "alive" for a moment when you pass funds through them.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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TomatoTomahto
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by TomatoTomahto » Tue Feb 26, 2013 8:31 am

As to doing it all online, I assume that you can do so at Fidelity. I did so at Vanguard.
Okay, I get it; I won't be political or controversial. The Earth is flat.

aceoperations
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by aceoperations » Tue Feb 26, 2013 8:32 am

I wonder if this is what you were trying to find:
http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

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mhc
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by mhc » Tue Feb 26, 2013 9:23 am

OP,

you and your spouse can not combine IRA's together. The "I" in IRA stands for "Individual".

You should have four accounts:
1. Your IRA
2. Your Roth
3. Spouse's IRA
4. Spouse's Roth

Most of the time the IRA's will have $0. You can continue to reuse the IRA accounts to backdoor money into the Roth's. In general, there is no reason to have multiple IRA's or Roth's per person.

Topic Author
primus
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by primus » Tue Feb 26, 2013 12:06 pm

Thx a bunch guys! I 'think' I get it ;-
Every year, I keep funding my tRA account and convert to existing Roth. In other words, maintain two accounts,

Any recommendations on a decent fund (MMA or other) from Fidelity? This is just to temporarily fund my tRA.
Once I convert to Roth, I may just transfer the entire account to Wealthfront, Betterment or similar service.

I want to give them a try, maybe for a year.

Default User BR
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by Default User BR » Tue Feb 26, 2013 4:35 pm

If you have the funds now, make both the 2012 and 2013 contributions at the same time then convert both.


Brian

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primus
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by primus » Sat Mar 02, 2013 3:59 pm

Appreciate all advise. I was successfully able to convert my accounts!

Gemini
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by Gemini » Sat Mar 02, 2013 7:37 pm

Is it too late to do a backdoor roth for 2012?

Can you specify whether it is for 2012 or 2013 with Vanguard?

Alan S.
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by Alan S. » Sat Mar 02, 2013 8:11 pm

You can still make a 2012 non deductible contribution, but your conversion will be in 2013. Any IRA custodian must require specific year of contribution identification for all contributions between 1/1/ and 4/15, since contributions made in that time frame could be for either year.

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grabiner
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by grabiner » Sat Mar 02, 2013 9:11 pm

Alan S. wrote:You can still make a 2012 non deductible contribution, but your conversion will be in 2013. Any IRA custodian must require specific year of contribution identification for all contributions between 1/1/ and 4/15, since contributions made in that time frame could be for either year.
And if you haven't made your IRA contribution for 2012, you could contribute $5000 for 2012 and $5500 for 2013 all at once, and then convert both at the same time.
Wiki David Grabiner

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primus
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by primus » Sun Mar 31, 2013 11:27 pm

Just when I thought I was done...Taxes!

As mentioned earlier, I made non-deductible tRA contributions to 2012 (5k) & 2013 (5.5k) & converted them to Roth (backdoor)
Now, I haven't received any 1099-Rs from Vanguard.
So, am I right in assuming that I don't report anything while I do taxes for 2012?
Or do I still report the tRAs and skip the 1099-Rs?

If I do need to report the tRAs for 2012, here is where I am stuck in Turbo Tax

Tell Us How Much You Contributed
- total 2012 traditional IRA contributions = 5000
- Tell us how much of the above total contribution for 2012 you contributed between January 1, 2013 and April 15, 2013 = 5000 (I am guessing this is right?)

Did You Switch Your Contribution?- No

Any Excess IRA Contributions Before 2012?
Tell us if XX contributed more money to this IRA than was allowed in 2011 or any previous year
- No

Any Nondeductible Contributions to XX's IRA?
Let us know if XX made and kept track of any nondeductible contributions to XX's traditional IRA from 2011 or prior years. (This is not common.)
What do I answer here? Why is it asking me about 2011. Note: This is my first tRA contribution

Appreciate it!

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tyler_cracker
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by tyler_cracker » Mon Apr 01, 2013 12:56 am

primus wrote: As mentioned earlier, I made non-deductible tRA contributions to 2012 (5k) & 2013 (5.5k) & converted them to Roth (backdoor)
Now, I haven't received any 1099-Rs from Vanguard.
So, am I right in assuming that I don't report anything while I do taxes for 2012?
no. you want to report the 2012 tIRA contribution with your 2012 taxes. you do this with form 8606.
Or do I still report the tRAs and skip the 1099-Rs?
since the conversion is happening in 2013, the conversion paperwork (1099-R) will go with your 2013 taxes. it should show the entire conversion of $10500.

in 2013, you will file another 8606 for the 2013 tIRA contribution of $5500.
If I do need to report the tRAs for 2012, here is where I am stuck in Turbo Tax

Tell Us How Much You Contributed
- total 2012 traditional IRA contributions = 5000
- Tell us how much of the above total contribution for 2012 you contributed between January 1, 2013 and April 15, 2013 = 5000 (I am guessing this is right?)
yup.
Did You Switch Your Contribution?- No

Any Excess IRA Contributions Before 2012?
Tell us if XX contributed more money to this IRA than was allowed in 2011 or any previous year
- No

Any Nondeductible Contributions to XX's IRA?
Let us know if XX made and kept track of any nondeductible contributions to XX's traditional IRA from 2011 or prior years. (This is not common.)
What do I answer here? Why is it asking me about 2011. Note: This is my first tRA contribution
if this is your first tIRA contribution then just answer no. i guess turbotax uses it to track your ongoing tIRA basis?

Topic Author
primus
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by primus » Tue Apr 23, 2013 11:25 pm

Thanks tyler_cracker. This was perfect!

Gemini
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by Gemini » Mon Sep 21, 2015 10:03 am

Did not want to start a new thread - figured I might as well ask in here to confirm.

Spouse will be making non-deductible tIRA contributions for 2015 ($5500) and 2016 (likely the same 5500 but IRS will announce in Oct 2015) in the first few months of 2016 with Vanguard.

Can we make the entire lump sum contribution of 11K at once and then do the Roth conversion in a day or so? Or must it be staged i.e. 2015 first and then 2016?

From what I understand:
- For 2015 taxes, report just the 5500 contribution with form 8606
- For 2016 taxes, report the other 5500 with form 8606.
- For 2016 taxes, also report the entire conversion of $11K with form 1099-R

retiredjg
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by retiredjg » Mon Sep 21, 2015 10:09 am

Gemini wrote:Did not want to start a new thread - figured I might as well ask in here to confirm.

Spouse will be making non-deductible tIRA contributions for 2015 ($5500) and 2016 (likely the same 5500 but IRS will announce in Oct 2015) in the first few months of 2016 with Vanguard.

Can we make the entire lump sum contribution of 11K at once and then do the Roth conversion in a day or so? Or must it be staged i.e. 2015 first and then 2016?

From what I understand:
- For 2015 taxes, report just the 5500 contribution with the 2015 form 8606
- For 2016 taxes, report the other 5500 with the 2016 form 8606.
- For 2016 taxes, also report the entire conversion of $11K with form 1099-R
This is correct except for one thing. The entire conversion of $11k will be reported on the back of the 2016 Form 8606 which will be filled out in early 2017.

If this does not make sense, suggest you do both the contribution and conversion for 2015 in 2015 and 2016 in 2016. Print the paperwork and pencil it in and see if it makes sense.

ThisTimeItsDifferent
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by ThisTimeItsDifferent » Mon Sep 21, 2015 10:40 am

mhc wrote:In general, there is no reason to have multiple IRA's or Roth's per person.
There is one reason for an individual to have multiple Roth accounts. With a new, separate Roth account that the traditional IRA is converted into, the conversion basis is isolated so if you do a re characterization, the amount to be re characterized does not have to be pro rata treated with the previous Roth IRAs. Instead, that total new Roth can simply be re characterized. If the accounts are combined or comingled, extra funds from the previous Roth IRA may be moved over to the traditional account on re characterization, converting post tax Roth money to pre tax traditional money, and causing eventual double taxation.

Gemini
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by Gemini » Mon Sep 21, 2015 11:36 am

retiredjg wrote:
Gemini wrote:Did not want to start a new thread - figured I might as well ask in here to confirm.

Spouse will be making non-deductible tIRA contributions for 2015 ($5500) and 2016 (likely the same 5500 but IRS will announce in Oct 2015) in the first few months of 2016 with Vanguard.

Can we make the entire lump sum contribution of 11K at once and then do the Roth conversion in a day or so? Or must it be staged i.e. 2015 first and then 2016?

From what I understand:
- For 2015 taxes, report just the 5500 contribution with the 2015 form 8606
- For 2016 taxes, report the other 5500 with the 2016 form 8606.
- For 2016 taxes, also report the entire conversion of $11K with form 1099-R
This is correct except for one thing. The entire conversion of $11k will be reported on the back of the 2016 Form 8606 which will be filled out in early 2017.

If this does not make sense, suggest you do both the contribution and conversion for 2015 in 2015 and 2016 in 2016. Print the paperwork and pencil it in and see if it makes sense.
To clarify:

- For 2015 taxes, report just the 5500 contribution with the ]2015 form 8606 filled out early in early 2016
- For 2016 taxes, report the other 5500 with the 2016 form 8606 filled out in early 2017
- For 2016 taxes, also report the entire conversion of $11K on the back of the 2016 Form 8606 to be filled out early in 2017

This means 2016 form 8606 will a) report the 5500 contribution b) report the 11K conversion

retiredjg
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Re: Backdoor Roth Q <sorry for being slow on the uptake>

Post by retiredjg » Mon Sep 21, 2015 12:06 pm

Correct. :wink:

You probably already know this, but you cannot have money in any other tIRA, SEP IRA, SIMPLE IRA or Rollover IRA at the end of any year in which you do a Roth conversion (step 2 of the back door).

Well, you can, but you don't want to….

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