suggestions to start using backdoor ROTH

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s2kmw
Posts: 29
Joined: Mon Feb 23, 2015 11:50 am

suggestions to start using backdoor ROTH

Post by s2kmw »

I would like to start doing backdoor ROTHs for myself and my wife. She has a tIRA with pre-tax funds in it currently. She is currently stay at home. To avoid the pro-rata, I can only think of re-characterizing as ROTH, but that would mean paying taxes at a higher bracket than what they were originally put in. What other options are there to rollover those funds to avoid the pro-rata?

Thanks
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Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: suggestions to start using backdoor ROTH

Post by Duckie »

s2kmw wrote:What other options are there to rollover those funds to avoid the pro-rata?
She could start a small home-business and open a solo 401k. Then roll the TIRA into the solo 401k.
Topic Author
s2kmw
Posts: 29
Joined: Mon Feb 23, 2015 11:50 am

Re: suggestions to start using backdoor ROTH

Post by s2kmw »

would something like selling things on ebay/craigslist pass for a "home business"? Even if it's like $100 of income, we would then need to report the income on schedule C and pay SE taxes etc?

Or could she just start something like that with the intent of selling but not actually make anything but still be able to open the solo401k just so we can roll-over the tIRA into it?
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retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: suggestions to start using backdoor ROTH

Post by retiredjg »

s2kmw wrote:...but that would mean paying taxes at a higher bracket than what they were originally put in.
Obviously, anyone would want to avoid this. But if the tIRA is tiny and she is never going back to work and there are many years to use the back door method to contribute to Roth….it might be worth it.
What other options are there to rollover those funds to avoid the pro-rata?
Solo 401k for a home business is the only way around this that I can think of. I'm not sure the costs would be worth it for a minimal income home business. Check Fidelity. Vanguard's Solo does not allow incoming rollovers from IRA.

I suppose waiting till she goes back to work (if that is in the plan) will take care of it.

Remember that you can use the back door even if she cannot. Just put the money for her Roth into taxable or put it toward the mortgage or something.
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