Is Backdoor Roth right for me?
-
- Posts: 5
- Joined: Thu Jul 07, 2016 10:58 am
Is Backdoor Roth right for me?
Hi all,
First time poster but long-time follower (this place is a treasure trove of advice; thank you guys for contributing).
I want to confirm that a backdoor Roth makes sense for me before I take the plunge. I live in NYC, I'm single, and I make somewhere around $170k gross salary. My only investments are an employer-sponsored 401k (just opened this year, but will hit the $18k ceiling by year-end) and a Roth IRA (opened in last year with $5500 and reported in 2015). Since I have the employer-sponsored 401k, I seem to be out of the running for the TIRA, and I seem to make too much to contribute directly to the Roth. Does the backdoor make sense for me?
Separately, I plan to start making investments in taxable accounts with income left over after this one-off backdoor and the continued 401k contributions. If that doesn't sound right based on my info above, please shout at me and tell me there's a better way.
Thanks so much.
First time poster but long-time follower (this place is a treasure trove of advice; thank you guys for contributing).
I want to confirm that a backdoor Roth makes sense for me before I take the plunge. I live in NYC, I'm single, and I make somewhere around $170k gross salary. My only investments are an employer-sponsored 401k (just opened this year, but will hit the $18k ceiling by year-end) and a Roth IRA (opened in last year with $5500 and reported in 2015). Since I have the employer-sponsored 401k, I seem to be out of the running for the TIRA, and I seem to make too much to contribute directly to the Roth. Does the backdoor make sense for me?
Separately, I plan to start making investments in taxable accounts with income left over after this one-off backdoor and the continued 401k contributions. If that doesn't sound right based on my info above, please shout at me and tell me there's a better way.
Thanks so much.
Re: Is Backdoor Roth right for me?
As long as you do not have any tax deferred IRA contributions the back door Roth IRA contribution does make sense for you. Make the after tax contribution to your TIRA and then make the conversion to your Roth IRA of your contribution amount.vincanity1 wrote:Hi all,
Does the backdoor make sense for me?
-
- Posts: 4805
- Joined: Wed Sep 09, 2015 4:44 pm
Re: Is Backdoor Roth right for me?
I suggest you ask your doctor...
Re: Is Backdoor Roth right for me?
Tal votes yes.
Given that you're young, with extra cash, maxing your 401(k), making a high income, etc. - this route seems perfect for you. Yes, I would advocate it.
Two things to watch our for are the prorata provisions (if you have non-Roth IRA money) and tax filing.
Given that you're young, with extra cash, maxing your 401(k), making a high income, etc. - this route seems perfect for you. Yes, I would advocate it.
Two things to watch our for are the prorata provisions (if you have non-Roth IRA money) and tax filing.
Debt is to personal finance as a knife is to cooking.
-
- Posts: 1082
- Joined: Wed Jun 22, 2016 1:41 pm
Re: Is Backdoor Roth right for me?
Another person to vote yes.
Where the tides of fortune take us, no man can know.
-
- Posts: 7189
- Joined: Sun Dec 16, 2007 11:25 am
Re: Is Backdoor Roth right for me?
When you do the conversion step convert the "full" amount. I think I recall that's one of the choices in Vanguard's menu. Then you have less chance of leaving a few dollars of gains needing to be carried over to your next year 8606.
JW
JW
Retired at Last
- 9-5 Suited
- Posts: 1306
- Joined: Thu Jun 23, 2016 12:14 pm
Re: Is Backdoor Roth right for me?
Also considering a backdoor Roth. The only thing that gave me pause was a quote from the Bogleheads Guide to Investing.
"If you later decide to convert [your non-deductible IRA] to a Roth or consolidate IRAs, the tax ramifications can be a nightmare."
Has anyone experienced this downside of added complexity? If so, do you still think it's easily worth it for the obvious economic gain?
"If you later decide to convert [your non-deductible IRA] to a Roth or consolidate IRAs, the tax ramifications can be a nightmare."
Has anyone experienced this downside of added complexity? If so, do you still think it's easily worth it for the obvious economic gain?
Re: Is Backdoor Roth right for me?
I'm not sure what you mean when you say your employer-sponsored 401k takes you out of the running for a traditional IRA. Your MAGI is what makes you ineligible for making a tax deduction on a traditional IRA contribution. That's the whole point of the backdoor Roth -- converting a non-deductible traditional IRA to a Roth IRA. If you're comfortable with the backdoor Roth, you seem to be well suited to make the move.vincanity1 wrote:Since I have the employer-sponsored 401k, I seem to be out of the running for the TIRA, and I seem to make too much to contribute directly to the Roth. Does the backdoor make sense for me?
Re: Is Backdoor Roth right for me?
And... Welcome to the forum!
-
- Posts: 110
- Joined: Sun Oct 18, 2015 10:35 pm
Re: Is Backdoor Roth right for me?
You may also want to check if your employer allows the mega back door roth (after tax 401k contributions => roth IRA withdrawals). This would allow you to contribute even more to your Roth IRA (up to $35k more per year depending on employer match)
Re: Is Backdoor Roth right for me?
Vote Yes!
“It is not necessary to do extraordinary things to get extraordinary results.” -WB
-
- Posts: 7417
- Joined: Sun Nov 15, 2009 8:24 am
Re: Is Backdoor Roth right for me?
Compound wrote:I'm not sure what you mean when you say your employer-sponsored 401k takes you out of the running for a traditional IRA. Your MAGI is what makes you ineligible for making a tax deduction on a traditional IRA contribution. That's the whole point of the backdoor Roth -- converting a non-deductible traditional IRA to a Roth IRA. If you're comfortable with the backdoor Roth, you seem to be well suited to make the move.vincanity1 wrote:Since I have the employer-sponsored 401k, I seem to be out of the running for the TIRA, and I seem to make too much to contribute directly to the Roth. Does the backdoor make sense for me?
IRS wrote:Full deduction.
If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of:
$5,500 ($6,500 if you are age 50 or older), or
100% of your compensation.
Re: Is Backdoor Roth right for me?
Thank you. I was unaware that the income limits for traditional IRA contributions being deductible were only for people covered by employer retirement plans.Bob's not my name wrote:Compound wrote:I'm not sure what you mean when you say your employer-sponsored 401k takes you out of the running for a traditional IRA. Your MAGI is what makes you ineligible for making a tax deduction on a traditional IRA contribution. That's the whole point of the backdoor Roth -- converting a non-deductible traditional IRA to a Roth IRA. If you're comfortable with the backdoor Roth, you seem to be well suited to make the move.vincanity1 wrote:Since I have the employer-sponsored 401k, I seem to be out of the running for the TIRA, and I seem to make too much to contribute directly to the Roth. Does the backdoor make sense for me?IRS wrote:Full deduction.
If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of:
$5,500 ($6,500 if you are age 50 or older), or
100% of your compensation.
-
- Posts: 5
- Joined: Thu Jul 07, 2016 10:58 am
Re: Is Backdoor Roth right for me?
Thanks so much, all! I definitely wanted to make sure the Bogleheads sages were behind me and I'm glad I did. I'll make sure to look into the mega backdoor.
Update: after doing a bit of research on the mega backdoor, and assuming my 401k plan allowed the mega, would I also be able to do the regular backdoor (i.e., separately and in addition to the mega backdoor)? I ask because the mega backdoor seems to be funded directly from a percentage taken from my salary, but I'm interested in investing the (already taxed) cash I have sitting in a checking account in some kind of tax-advantaged vehicle.
Update: after doing a bit of research on the mega backdoor, and assuming my 401k plan allowed the mega, would I also be able to do the regular backdoor (i.e., separately and in addition to the mega backdoor)? I ask because the mega backdoor seems to be funded directly from a percentage taken from my salary, but I'm interested in investing the (already taxed) cash I have sitting in a checking account in some kind of tax-advantaged vehicle.
Re: Is Backdoor Roth right for me?
Yes. You can do both.vincanity1 wrote:Thanks so much, all! I definitely wanted to make sure the Bogleheads sages were behind me and I'm glad I did. I'll make sure to look into the mega backdoor.
Update: after doing a bit of research on the mega backdoor, and assuming my 401k plan allowed the mega, would I also be able to do the regular backdoor (i.e., separately and in addition to the mega backdoor)? I ask because the mega backdoor seems to be funded directly from a percentage taken from my salary, but I'm interested in investing the (already taxed) cash I have sitting in a checking account in some kind of tax-advantaged vehicle.