Hello,
In Jan 2016, I thought my income will exceed 190K so did the Backdoor Roth IRA. Now coming to the end of the year, it is not going to exceed.
Does is make any difference or do I need to do anything different while filing taxes because of the Backdoor Roth IRA I did even though my income is not going to go over the limit?
Thanks,
Jr
Did Backdoor Roth IRA - now Income not going to exceed the limit
Re: Did Backdoor Roth IRA - now Income not going to exceed the limit
No difference...you'll just file your taxes for a Backdoor Roth IRA regardless of whether you exceeded the limit or not. There are no income restrictions on any of the steps required for the Backdoor Roth IRA.
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Re: Did Backdoor Roth IRA - now Income not going to exceed the limit
That is the beauty of the backdoor Roth. If you had made a Roth IRA contribution and were wrong you would have had to re-characterize to a non-deductible and then do a Roth conversion. So if there is any chance you will exceed the limit it is safer to do the backdoor Roth. Then even if you don't exceed the limit, there is nothing more required than if you had.
Re: Did Backdoor Roth IRA - now Income not going to exceed the limit
If you determined that your back door conversion was going to be mostly taxable as has happened to some people due to having rollover IRA accounts, then you would recharacterize both the conversion back to TIRA and the regular TIRA contribution as a Roth. That would eliminate any tax bill on your conversion and also provide you with access to that Roth money tax free if you needed it.
Another situation to consider would be if you needed to tap Roth conversions but you did taxable conversions within the last 5 years. You could not withdraw from your 2016 non taxable conversion before first withdrawing the older taxable conversions and you would owe a 10% penalty for that. I would only be concerned with this if you think you have an exposure to this situation.
Each of the above situations would probably not affect you, but you should be aware of them just in case.
NOTE: Lacking the above two scenarios, if your modified AGI ends up or could end up in the contribution phaseout range, you would also do the back door instead of splitting your contribution between the amount of partial Roth you are allowed and a ND TIRA and conversion for the rest.
Another situation to consider would be if you needed to tap Roth conversions but you did taxable conversions within the last 5 years. You could not withdraw from your 2016 non taxable conversion before first withdrawing the older taxable conversions and you would owe a 10% penalty for that. I would only be concerned with this if you think you have an exposure to this situation.
Each of the above situations would probably not affect you, but you should be aware of them just in case.
NOTE: Lacking the above two scenarios, if your modified AGI ends up or could end up in the contribution phaseout range, you would also do the back door instead of splitting your contribution between the amount of partial Roth you are allowed and a ND TIRA and conversion for the rest.