Backdoor Roth with Schwab

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multiham
Posts: 105
Joined: Sun Jan 08, 2017 11:28 am

Backdoor Roth with Schwab

Post by multiham » Thu May 18, 2017 4:56 pm

Little nervous after my transaction today. Looking to make sure I did not screw anything up

I opened an IRA at Schwab last week. I have no other TIRA's, but do have a small Roth IRA from a while ago.
Placed $2,000 into the IRA today via a transfer from my linked Schwab bank account. Money is instantly available for investment.
Could not find how to convert the $2,000 from the TIRA to the Roth IRA so I called Schwab. The person I talked to said you can't do the Roth conversion on-line so she would need to complete the Roth conversion for me. She did the conversion and I now have the $2,000 ready to invest in my Roth IRA. She also told me that this was a taxable event. I explained to her it was not and asked her how to make sure that Schwab did not withhold 10% for Federal Taxes. She showed me how to do this, and no withholdings were done.

Here are my questions:
1. She did a Roth conversion. Is that the correct process I needed her to do?
2. The $2,000 was only in my TIRA for about 10 minutes before being converted to a Roth IRA. Is this okay or did I need to wait a certain amount of time?
3. Wanted to confirm that this is not a taxable event as I generated no gains as the money was only in the TIRA for 10 minutes.

Thank you!

Alan S.
Posts: 6905
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Backdoor Roth with Schwab

Post by Alan S. » Thu May 18, 2017 5:31 pm

1) Yes.
2) No minimum waiting time, so fine.
3) You control whether it is taxable or not. If you file Form 8606 showing that you made a 2k non deductible contribution, your conversion will be non taxable. Conversion is also reported on Form 8606. You will get a 1099R next January showing the distribution as taxable in Box 2a, but that is meaningless. Schwab must issue the 1099R that way. and they have no idea whether the 2k distribution is taxable or not. How you complete the 8606 determines if the conversion is taxable or non taxable.

You can repeat this process later on if you want to increase your 2k contribution up toward the max of 5.5k.

multiham
Posts: 105
Joined: Sun Jan 08, 2017 11:28 am

Re: Backdoor Roth with Schwab

Post by multiham » Thu May 18, 2017 6:08 pm

Thank you! I was confused when she said that Schwab was going to withhold taxes.

I believe I can do $6,500 in total since I am 51. If I do the $6,500 over 3 transactions this year, do I have to file 3 form 8606's or can I consolidate all 3 transactions onto one form 8606?

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Voltron
Posts: 65
Joined: Wed Apr 26, 2017 10:00 pm
Location: California

Re: Backdoor Roth with Schwab

Post by Voltron » Thu May 18, 2017 6:44 pm

I don't know the answer to your question. I want to say it's different forms based on the year you are claiming for the conversion to Roth. One thing about Schwab is hey have excellent telephone support, and online chatting support. They walked me through the backdoor Roth via online chat, and did the conversion via online chat.

Alan S.
Posts: 6905
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Backdoor Roth with Schwab

Post by Alan S. » Thu May 18, 2017 7:05 pm

multiham wrote:Thank you! I was confused when she said that Schwab was going to withhold taxes.

I believe I can do $6,500 in total since I am 51. If I do the $6,500 over 3 transactions this year, do I have to file 3 form 8606's or can I consolidate all 3 transactions onto one form 8606?
Yes, 6500 max for age 50+. With respect to withholding, you should specifically DECLINE withholding or Schwab will withhold 10% of your conversion. If you do 3 conversions in 2017, the 1099R will add up all 3 on one form, and you will also add them up on single 8606 form. Doing 3 conversions is no more work from a tax reporting standpoint than one conversion.

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