Can I have a tIRA & a Roth?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
new2bogle2
Posts: 382
Joined: Sun Dec 29, 2013 12:49 pm

Can I have a tIRA & a Roth?

Post by new2bogle2 » Fri Mar 20, 2015 5:43 am

I qualified, again, for a Roth IRA this year but my income is very close to the upper limit. I imagine there will be a year quite soon where I no longer qualify for a Roth. At that time I'd like to open a tIRA and backdoor the Roth.
1) It is my understanding that I cannot contribute more than $5,500, in total, to all IRAs. Is that correct?
2) if I were to find out after my accountant reviews my taxes in 2016 that I didn't qualify for a 2015 Roth (I won't make 2015 contributions until my accountant reviews my 2015 income in 2016), can I open a tIRA in March 2016 and make a 2015 contribution? Or must I open that tIRA account in 2015? Thank you

gclancer
Posts: 472
Joined: Sat Apr 27, 2013 10:34 am

Re: Can I have a tIRA & a Roth?

Post by gclancer » Fri Mar 20, 2015 6:27 am

1) you are correct.
2) you can make a non-deductible IRA contribution for 2015 anytime between now and 4/15/16. If you wait until 2016 you'll have a 2015 contribution and a 2016 conversion which makes tax returns a little bit more messy. For that reason most folks would do the contribution and conversion prior to 12/31/15 (because it's more simple not because it's required).

rkhusky
Posts: 5155
Joined: Thu Aug 18, 2011 8:09 pm

Re: Can I have a tIRA & a Roth?

Post by rkhusky » Fri Mar 20, 2015 6:47 am

If you are 50+ or will turn 50 this year, then you can contribute 6500. And if you are married, each spouse can contribute 5500 (6500), even if only one has earned income.
Last edited by rkhusky on Fri Mar 20, 2015 9:40 am, edited 1 time in total.

User avatar
new2bogle2
Posts: 382
Joined: Sun Dec 29, 2013 12:49 pm

Re: Can I have a tIRA & a Roth?

Post by new2bogle2 » Fri Mar 20, 2015 7:52 am

gclancer wrote:1) you are correct.
2) you can make a non-deductible IRA contribution for 2015 anytime between now and 4/15/16. If you wait until 2016 you'll have a 2015 contribution and a 2016 conversion which makes tax returns a little bit more messy. For that reason most folks would do the contribution and conversion prior to 12/31/15 (because it's more simple not because it's required).
Will there be a tax mess if I wait until until 2016 but only make a 2015 contribution? Can I open this account in 2016 or must I open the account in 2015?
Thanks

Rob Bertram
Posts: 806
Joined: Mon May 05, 2014 12:15 pm

Re: Can I have a tIRA & a Roth?

Post by Rob Bertram » Fri Mar 20, 2015 8:03 am

new2bogle2 wrote:Will there be a tax mess if I wait until until 2016 but only make a 2015 contribution? Can I open this account in 2016 or must I open the account in 2015?
1) No tax mess assuming that you haven't filed your taxes yet.
2) Yes, you can open the account in 2016 and fund for 2015 as long as it's before tax day (April 15th).

wfrobinette
Posts: 643
Joined: Fri Feb 20, 2015 3:14 pm

Re: Can I have a tIRA & a Roth?

Post by wfrobinette » Fri Mar 20, 2015 8:18 am

Keep in mind you can contribute as a roth during the year and you find you hit the income limit you can do a re-characterization of the Roth to a tIRA. I have done this in the past and it created no complications.

Or you can just do the tIRA(don't take the tax deduction on your return) and then decide to do the back door in 2016 with no issues.

rickberg
Posts: 19
Joined: Tue Sep 09, 2014 7:36 pm

Re: Can I have a tIRA & a Roth?

Post by rickberg » Fri Mar 20, 2015 8:59 am

I'm in a similar situation with the OP -

For 2014 - I've reached the income limit and cannot contribute to my Roth for 2014. I cannot current perform a backdoor roth because I have a rollover IRA from my previous company. I'm looking to roll this amount into my current companies 401k this year.

What are my options? Should I contribute to a non-deductible tIRA for 2014? Whats the benefit of doing this if I don't get any tax benefits? If I move all of my rollover IRA's into my current companies 401k, can I convert the 2014 tIRA to roth this year?

User avatar
kenyan
Posts: 2921
Joined: Thu Jan 13, 2011 12:16 am

Re: Can I have a tIRA & a Roth?

Post by kenyan » Fri Mar 20, 2015 9:09 am

rickberg wrote:I'm in a similar situation with the OP -

For 2014 - I've reached the income limit and cannot contribute to my Roth for 2014. I cannot current perform a backdoor roth because I have a rollover IRA from my previous company. I'm looking to roll this amount into my current companies 401k this year.

What are my options? Should I contribute to a non-deductible tIRA for 2014? Whats the benefit of doing this if I don't get any tax benefits? If I move all of my rollover IRA's into my current companies 401k, can I convert the 2014 tIRA to roth this year?
You can't do a Backdoor Roth (without consequences) for 2014 anymore, since you had a Rollover IRA. Rolling that IRA into your 401k now does not affect your 2014 TIRA regardless of when you fund the 2014 IRA, because Form 8606 asks what the balances were in all of your IRAs as of December 31, 2014. You could do that for your 2015 IRA as long as you roll it over before December 31, 2015.

I don't personally feel that nondeductible Traditional IRAs are worth it in nearly all cases if you can't Backdoor them. Taxable investing is preferable. Since you asked about the benefits - they're ok for highly tax-inefficient assets that throw off a lot of income that is taxable at your marginal rate, since you get to defer the taxes on them. Mostly, I'd prefer (efficient) taxable investing for the liquidity, lower capital gains tax rates, ability to tax loss harvest, etc.
Retirement investing is a marathon.

retiredjg
Posts: 32393
Joined: Thu Jan 10, 2008 12:56 pm

Re: Can I have a tIRA & a Roth?

Post by retiredjg » Fri Mar 20, 2015 9:17 am

new2bogle2 wrote:Will there be a tax mess if I wait until until 2016 but only make a 2015 contribution? Can I open this account in 2016 or must I open the account in 2015?
I suspect you read something about this on a roth IRA website - saying you have to open it in 2015. That is incorrect information and several people have stumbled on it. I wish they'd fix it. :happy

If you make a non-deductible contribution to tIRA in 2016 for 2015, you will document the contribution part on the 2015 Form 8606. The conversion step is documented the following year on the 2016 Form 8606. There is no problem in doing this - it's just something that you have to remember to do a year later.

retiredjg
Posts: 32393
Joined: Thu Jan 10, 2008 12:56 pm

Re: Can I have a tIRA & a Roth?

Post by retiredjg » Fri Mar 20, 2015 9:35 am

rickberg wrote:For 2014 - I've reached the income limit and cannot contribute to my Roth for 2014. I cannot current perform a backdoor roth because I have a rollover IRA from my previous company. I'm looking to roll this amount into my current companies 401k this year.

What are my options? Should I contribute to a non-deductible tIRA for 2014? Whats the benefit of doing this if I don't get any tax benefits? If I move all of my rollover IRA's into my current companies 401k, can I convert the 2014 tIRA to roth this year?
If you make a non-deductible contribution for 2014 now, it can be converted to Roth at any time if you are absolutely sure you can get your rollover IRA out of the way by the end of the year. For a conversion performed in 2015 (no matter when the contribution is for) your IRA balance (includes SEP and SIMPLE IRA) must be $0 on 12/31/15 or the conversion is pro-rated.

So I think I'm disagreeing with Kenyan's answer, at least in part.

To make things simpler, if you make the contribution, invest the money in money market so the value does not change between the contribution and the conversion.

If you find you cannot get your rollover IRA out of the way, I would not make a non-deductible contribution to tIRA.

DreamHigher
Posts: 46
Joined: Tue Apr 15, 2014 10:36 pm

Re: Can I have a tIRA & a Roth?

Post by DreamHigher » Fri Mar 20, 2015 9:44 am

I too ran into this situation for tax year 2014. I used to have only Roth IRA, but now have opened Traditional IRA as well. I called Vanguard to re characterize my 2014 Roth contributions to TIRA. Once the amount was in TIRA, I called them the next day to backdoor convert to Roth. I'm clear on the steps I took this year.

However, going forward in 2015, should I be contributing to TIRA and then covert that over to Roth? Or should I be contributing to Roth and have Vanguard re-characterize and convert?

The reason I mention this is the following. It could also be my mis-understanding.
When I asked Vanguard to re-characterize, then re-characterized my 2014 contributions plus the gains/earnings. So, it was more than $5500 and all of this was backdoor-ed to Roth seemingly without any tax consequences.

On the flip side, my wife had TIRA up until 2014. So, we opened a Roth for her. Her conversion was simple and was done online. During the conversion process, it asked how much I wanted to convert over to Roth. I chose $5500. After all of this was done, I noticed that there were two transactions, $5200 (contributions) and $300 (gains/earnings). In short, $300 worth of contributions still remain in the TIRA. I believe, we could covert this again until we get even. But, I've not figured out exactly how much over contributions to covert. I'm sure there is a way or I can always call Vanguard. But, wanted to see if others encountered similar issue.

If you aren't allowed to convert the full non-deductible IRA contributions + gains/earnings without any tax consequences on the gains/earnings portion, then isn't contributing to Roth and re-characterize/convert is the way to go?

For this reason, I'm wondering if we should simply contribute to Roth and let Vanguard re-characterize and covert on 12/31. Or should go DIY and contribute TIRA and do the conversion online? Am I mis-understanding something?

User avatar
kenyan
Posts: 2921
Joined: Thu Jan 13, 2011 12:16 am

Re: Can I have a tIRA & a Roth?

Post by kenyan » Fri Mar 20, 2015 10:05 am

retiredjg wrote:
rickberg wrote:For 2014 - I've reached the income limit and cannot contribute to my Roth for 2014. I cannot current perform a backdoor roth because I have a rollover IRA from my previous company. I'm looking to roll this amount into my current companies 401k this year.

What are my options? Should I contribute to a non-deductible tIRA for 2014? Whats the benefit of doing this if I don't get any tax benefits? If I move all of my rollover IRA's into my current companies 401k, can I convert the 2014 tIRA to roth this year?
If you make a non-deductible contribution for 2014 now, it can be converted to Roth at any time if you are absolutely sure you can get your rollover IRA out of the way by the end of the year. For a conversion performed in 2015 (no matter when the contribution is for) your IRA balance (includes SEP and SIMPLE IRA) must be $0 on 12/31/15 or the conversion is pro-rated.

So I think I'm disagreeing with Kenyan's answer, at least in part.

To make things simpler, if you make the contribution, invest the money in money market so the value does not change between the contribution and the conversion.

If you find you cannot get your rollover IRA out of the way, I would not make a non-deductible contribution to tIRA.
Ok, you forced me to go through the mental exercise of filling out the form, and I think you're right - I had missed that lines 4 and 5 would 'zero out' your basis for 2014, then get it all captured in your 2015 form (I think).
Retirement investing is a marathon.

The Wizard
Posts: 11639
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Can I have a tIRA & a Roth?

Post by The Wizard » Fri Mar 20, 2015 10:26 am

You can put new contributions in your Roth IRA for the previous year after you file your 1040 for that year.
That's what I did for 2014, once I knew my AGI for that year...
Attempted new signature...

retiredjg
Posts: 32393
Joined: Thu Jan 10, 2008 12:56 pm

Re: Can I have a tIRA & a Roth?

Post by retiredjg » Fri Mar 20, 2015 11:33 am

DreamHigher wrote:However, going forward in 2015, should I be contributing to TIRA and then covert that over to Roth? Or should I be contributing to Roth and have Vanguard re-characterize and convert?
If your MAGI is too high to contribute directly to Roth, contribute to tIRA and convert. There is no reason to go through the re-characterization.
The reason I mention this is the following. It could also be my mis-understanding.
When I asked Vanguard to re-characterize, then re-characterized my 2014 contributions plus the gains/earnings. So, it was more than $5500 and all of this was backdoor-ed to Roth seemingly without any tax consequences.
This is correct. It is just as if you had put it in tIRA to begin with and invested it in the same way. A re-characterization is just a "do over" when you get it wrong the first time.
On the flip side, my wife had TIRA up until 2014. So, we opened a Roth for her. Her conversion was simple and was done online. During the conversion process, it asked how much I wanted to convert over to Roth. I chose $5500. After all of this was done, I noticed that there were two transactions, $5200 (contributions) and $300 (gains/earnings). In short, $300 worth of contributions still remain in the TIRA. I believe, we could covert this again until we get even. But, I've not figured out exactly how much over contributions to covert. I'm sure there is a way or I can always call Vanguard. But, wanted to see if others encountered similar issue.
I'm not sure why it showed up as 2 transactions. However, I think you have a problem since you didn't convert the whole thing. Any money in her tIRA on 12/31 of this year will be prorated with the conversion you just did. For her, you may want to re-chacterize the Roth conversion and maybe even undo the contribution all together. Does she have a 401k or 403b she could roll the tIRA into?

flyingaway
Posts: 1687
Joined: Fri Jan 17, 2014 10:19 am

Re: Can I have a tIRA & a Roth?

Post by flyingaway » Fri Mar 20, 2015 12:19 pm

The Wizard wrote:You can put new contributions in your Roth IRA for the previous year after you file your 1040 for that year.
That's what I did for 2014, once I knew my AGI for that year...
But how do you report this to IRS? Next year, when you file 10400 for 2015, the tax software only asks for 2015 contribution.

In 2014, I contributed to Roth IRA for both 2013 and 2014 after I filed (2013) 1040. This year, my tax return software only asks if I contributed to Roth IRA for 2014. I don't know how to report the 2013 contribution.

Any suggestions? (I read somewhere that I do not need to report Roth IRA contribution to IRS, the trustee (Fidelity) does).

retiredjg
Posts: 32393
Joined: Thu Jan 10, 2008 12:56 pm

Re: Can I have a tIRA & a Roth?

Post by retiredjg » Fri Mar 20, 2015 12:34 pm

You do not report a direct Roth contribution to the IRS. Tax software may ask about it, but the information does not go on your tax return.

If you use the back door method to "contribute" to Roth IRA, that does get reported because it is actually a contribution to tIRA followed by a Roth conversion. Those things are reportable.

sawhorse
Posts: 2939
Joined: Sun Mar 01, 2015 7:05 pm

Re: Can I have a tIRA & a Roth?

Post by sawhorse » Fri Mar 20, 2015 1:51 pm

If you have a traditional already that has pre-tax contributions, the backdoor conversion becomes a lot more complicated, so be aware of that.

gclancer
Posts: 472
Joined: Sat Apr 27, 2013 10:34 am

Re: Can I have a tIRA & a Roth?

Post by gclancer » Sat Mar 21, 2015 9:01 am

http://whitecoatinvestor.com/late-contr ... -roth-ira/

I think this post from White Coat Investor answers your questions.

User avatar
new2bogle2
Posts: 382
Joined: Sun Dec 29, 2013 12:49 pm

Re: Can I have a tIRA & a Roth?

Post by new2bogle2 » Sun Mar 22, 2015 8:02 pm

Since im not sure if i will or wont Qualify for a Roth in 2015, Can I just contribute to a non deductible tIRA in 2015 and then use a backdoor Roth to count for 2015....would this be a problem to use the backdoor even if I found out, after talking to my accountant, that I DID qualify for a Roth in 2015?

retiredjg
Posts: 32393
Joined: Thu Jan 10, 2008 12:56 pm

Re: Can I have a tIRA & a Roth?

Post by retiredjg » Sun Mar 22, 2015 8:26 pm

No, it should not be a problem unless it makes your state taxes different. Just be sure you don't forget and do a rollover into tIRA late in the year. Your tIRA (including SEP and SIMPLE) balance must be $0 on 12/31 of any year in which you do a conversion to avoid things being pro-rated.

Post Reply