Questions Regarding Back Door Roth IRA With Existing Accounts

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broncocountry25
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Joined: Thu May 18, 2017 11:49 am

Questions Regarding Back Door Roth IRA With Existing Accounts

Post by broncocountry25 » Wed Dec 06, 2017 11:37 am

Hello,

I have done the search for this topic and read over many threads. However, I do not feel confident that I have had my question answered and am in the thick of all of this in order to get it done. Please forgive me if I just need it explained in a different way then what I have already read.

Situation:
MFJ tax status, income this year got a big boost pushing us over the contribution limit for Roth IRA. However, both of us had already contributed the $5,500 to the Roth IRA.

Once I realized we were going to be over the income limit I read about how to do the back door Roth maneuver. One of the hurdles is a previous 401K rollover that is now a traditional IRA sitting at Vanguard. So I understand the first piece is to get that money into the current 401K and we are on that step. So more then anything I need clarification because the end of the year is fast approaching.

Questions:

1.) If we can get the money into a 401k by 12/31 from the previous trad ira roll over can we still do the back door roth? If it gets pushed into 2018 what does that mean?
2.) The money that is already in the Roth IRA's 11k + earnings, does it need to be re characterized to a non deductible trad IRA? Can I do that now without messing anything up?
3.) Based on timing of when #1 gets done can we do the back door roth for the 2017 contributions and will we be able to do it for the 2018 contributions we hope to make as well in the same tax year?

Please let me know if I can add clarity because my head is starting to hurt. :oops:

Thanks for whoever has experience with this.

kaneohe
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Joined: Mon Sep 22, 2008 12:38 pm

Re: Questinons Regarding Back Door Roth IRA With Exisisting Accounts

Post by kaneohe » Wed Dec 06, 2017 12:07 pm

I think the answer to all your questions is yes. As you understand, the key is isolating the rollover TIRA in a 401K before yr end of the yr you do the conversion to Roth (and you do need to recharacterize the Roth to TIRA because you will not be eligible to make a direct Roth contribution.
It might be helpful to fill out by hand F8606 to see how the taxation goes if the rollover IRA is still in (or is not in)the picture.
https://www.irs.gov/pub/irs-prior/f8606--2016.pdf

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Epsilon Delta
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Re: Questinons Regarding Back Door Roth IRA With Exisisting Accounts

Post by Epsilon Delta » Wed Dec 06, 2017 12:21 pm

broncocountry25 wrote:
Wed Dec 06, 2017 11:37 am
Hello,

I have done the search for this topic and read over many threads. However, I do not feel confident that I have had my question answered and am in the thick of all of this in order to get it done. Please forgive me if I just need it explained in a different way then what I have already read.

Situation:
MFJ tax status, income this year got a big boost pushing us over the contribution limit for Roth IRA. However, both of us had already contributed the $5,500 to the Roth IRA.

Once I realized we were going to be over the income limit I read about how to do the back door Roth maneuver. One of the hurdles is a previous 401K rollover that is now a traditional IRA sitting at Vanguard. So I understand the first piece is to get that money into the current 401K and we are on that step. So more then anything I need clarification because the end of the year is fast approaching.

Questions:

1.) If we can get the money into a 401k by 12/31 from the previous trad ira roll over can we still do the back door roth? If it gets pushed into 2018 what does that mean?
2.) The money that is already in the Roth IRA's 11k + earnings, does it need to be re characterized to a non deductible trad IRA? Can I do that now without messing anything up?
3.) Based on timing of when #1 gets done can we do the back door roth for the 2017 contributions and will we be able to do it for the 2018 contributions we hope to make as well in the same tax year?

Please let me know if I can add clarity because my head is starting to hurt. :oops:

Thanks for whoever has experience with this.
0) if only one of you has a traditional IRA (e.g. the Rollover IRA) the other spouse is clear to do the backdoor Roth right now. Your traditional IRA does not affect your spouses backdoor Roth and vice versa.

1) Its the value in the traditional IRA as of 12/31 that counts so yes if you may be able to complete this in 2017. You'd have to be lucky to get all the parties to move that quickly but it might be possible. If you can't get the things done by 12/31 it's not a major problem. It will spread the transactions over two years tax returns which is a minor inconvenience, it will also move the any gains from 2017 income to 2018 income, which could be good or bad but is usually neutral. Also the longer the time between the initial contribution and the eventual conversion the larger the gains, but delaying from Dec to Jan should not be that big a deal.

2) Yes. If you are over the income limit you need to recharaterize the contributions and earnings. You can do it now. For the spouse without a tIRA I would do it now. For the spouse with a tIRA I would wait until you are sure you will be able to move the tIRA to a 401(k). But that's a matter of taste. There is little harm from delaying and small chance it might give you other options if the rollover to the 401(k) falls through.

3) None of this will aversely affect a backdoor Roth for 2018, as long as the rollover to the 401(k) is completed by Dec 31 2018. However if the conversion for the 2017 backdoor Roth extends into 2018 then the 2018 tax forms will reflect both transaction. It's simply a matter of adding the two transactions together. Not really hard but takes attention to detail. I'd also strongly suggest opening brand new accounts for the 2018 Roth conversion. If you mingle the accounts with 2017 and 2018 money the accounting could be confusing.

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Duckie
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Re: Questinons Regarding Back Door Roth IRA With Exisisting Accounts

Post by Duckie » Wed Dec 06, 2017 7:33 pm

broncocountry25 wrote:If we can get the money into a 401k by 12/31 from the previous trad ira roll over can we still do the back door roth? If it gets pushed into 2018 what does that mean?
If you can't get the rollover IRA moved then you wait until 2018 to convert. It's not a big deal.
The money that is already in the Roth IRA's 11k + earnings, does it need to be re characterized to a non deductible trad IRA? Can I do that now without messing anything up?
You both need to recharacterize your 2017 Roth IRA contributions and earnings to TIRAs. Do it now. It won't mess anything up and because of the possible tax rules changes you may not be able to do it next year. If you don't recharacterize you have to withdraw the excess contributions completely or be hit with a 6% tax.
Based on timing of when #1 gets done can we do the back door roth for the 2017 contributions and will we be able to do it for the 2018 contributions we hope to make as well in the same tax year?
If the rollover IRA gets moved in time you can convert your recharacterized TIRAs into Roth IRAs in 2017. In that case when you fill out Form 8606 (one for each of you) for 2017 you will put the non-deductible contribution in Part I and the conversion in Part II. Plus you'll add an explanation about the recharacterization. If it doesn't get moved it time, convert in 2018. Then fill out the 8606 for 2017 with just the contribution in Part I. The conversion will be listed on your 2018 form.

broncocountry25
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Joined: Thu May 18, 2017 11:49 am

Re: Questions Regarding Back Door Roth IRA With Existing Accounts

Post by broncocountry25 » Thu Dec 07, 2017 6:47 pm

Thanks to everyone for replying! Sounds like it will all be good just a bit more to pay in taxes if the market keeps moving upwards.

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