Backdoor Roth logistics question re: existing TIRA

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simplify
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Joined: Sun Feb 26, 2017 10:14 pm

Backdoor Roth logistics question re: existing TIRA

Post by simplify » Mon Oct 02, 2017 10:56 am

Hello all,

This will be my first year doing a backdoor Roth. I have an existing Traditional IRA account with Vanguard (a rollover from previous employer) with a 100K balance. I know I need to roll that over to my current employer's 401k (which does accept incoming rollovers) to avoid the pro-rata rule thing. I also know that as long as I roll that over by 12/31 of this year, all will be good. I also have an existing Roth IRA with Vanguard.

Question 1: Whether I roll the existing TIRA money over now or by end of year, do I need to open up a *separate* Traditional IRA at Vanguard to be the account in which I fund with the backdoor Roth money (prior to converting it to Roth?)
Question 2: When I convert it to Roth, can I use my existing Roth IRA with Vanguard? Or do I need to open a separate Roth for the incoming conversion?

Thank you!

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Kevin M
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Re: Backdoor Roth logistics question re: existing TIRA

Post by Kevin M » Mon Oct 02, 2017 11:21 am

My daughter was in a similar situation. Since it's so easy to open a new traditional IRA at Vanguard, I had her open a new traditional IRA for the new contributions to be converted to Roth. This just keeps things clean, and clearly distinguishes the different purposes of the money in each IRA. I don't know if there's any other better reason to do it, so others can chime in on that.

One reason to create a separate Roth is if you might want to recharacterize part or all of the conversion, since this eliminates any proration of gains or losses from other investments in an existing Roth. If you are sure you won't recharacterize, this reason does not apply.

In my daughter's case, we still went ahead and created a new Roth, basically for mental accounting reasons. She was thinking that there was a reasonable probability that she might withdraw this Roth contribution in the relatively near future, for example for a house down payment. It just made it easier for her to handle it mentally by doing it this way.

I can't think of any other reason to create a new Roth to accept the conversion.

Kevin
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