I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

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boglechu
Posts: 148
Joined: Sat Jan 30, 2016 3:19 am

I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by boglechu »

I have a Vanguard Rollover IRA with 30k in it (it was started in 2016 from a rollover of a 457b). I am in process of rolling it over to current 401k so that I can do the backdoor IRA.

Once rollover complete , the original VG rollover IRA with 30k will be $0.

Should I create a new traditional IRA on vanguard's website? The old rollover IRA will be closed?
mhalley
Posts: 8657
Joined: Tue Nov 20, 2007 6:02 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by mhalley »

The old Ira would remain open, just have zero dollars in it. It is ok to use the old account for new contributions. If you are ever in a situation to roll another 401k int an IRA, I would not commingle the money, but since the balance would be zero and you will be doing backdoor roths, just using the old account will be fine.
panhead
Posts: 459
Joined: Fri Feb 22, 2013 10:53 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by panhead »

mhalley wrote: Wed Dec 13, 2017 2:44 pm The old Ira would remain open, just have zero dollars in it. It is ok to use the old account for new contributions. If you are ever in a situation to roll another 401k int an IRA, I would not commingle the money, but since the balance would be zero and you will be doing backdoor roths, just using the old account will be fine.
I believe what is said above to be true, but if it was me I would probably open another IRA anyway to do the backdoor Roth.
Just a note, it does not matter what order you do these in. You could have opened a traditional IRA and converted it to a Roth IRA before rolling over the rollover IRA to your 401k. The important thing is that the Dec 31st balance of all non-Roth IRAs is $0.

See form 8606 to understand why this is.
pangea33
Posts: 46
Joined: Mon Jan 16, 2017 11:57 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by pangea33 »

mhalley wrote: Wed Dec 13, 2017 2:44 pmIf you are ever in a situation to roll another 401k int an IRA, I would not commingle the money
I am in IT and the lifespan of a particular job can be somewhat short. Often under five years in my experience. I have an existing Vanguard Rollover 401K that I just keep adding money to whenever I leave a job.

Am I correct in understanding that you're saying this is a bad idea? Based on my most recent history, I would have four separate rollover accounts since 2014 if I did that. Sounds like a bit of a logistical nightmare, especially because I expect to spend another 25+ years in this line of work. Can you provide me some more details about this decision?

Thanks
panhead
Posts: 459
Joined: Fri Feb 22, 2013 10:53 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by panhead »

pangea33 wrote: Wed Dec 13, 2017 2:57 pm
mhalley wrote: Wed Dec 13, 2017 2:44 pmIf you are ever in a situation to roll another 401k int an IRA, I would not commingle the money
I am in IT and the lifespan of a particular job can be somewhat short. Often under five years in my experience. I have an existing Vanguard Rollover 401K that I just keep adding money to whenever I leave a job.

Am I correct in understanding that you're saying this is a bad idea? Based on my most recent history, I would have four separate rollover accounts since 2014 if I did that. Sounds like a bit of a logistical nightmare, especially because I expect to spend another 25+ years in this line of work. Can you provide me some more details about this decision?

Thanks
This is not my area of expertise but I believe some 401k plans are picky about accepting an IRA roll-in that has had comingled money from a rollover from a previous 401k as well as individual contributions. I *think* the idea is to keep the rollover IRA all rollovers from employee plans so it can later be rolled easily into a new employers 401k plan. The idea here is that many of us do backdoor Roth IRAs, and we want to have a 0 balance in non Roth IRAs to allow for this without taxes being due. By the way, I think you meant you have an existing Rollover IRA and not a 401k with Vanguard. If I misunderstand, please correct me, if I am correct, you might want to edit the original post.
e5116
Posts: 633
Joined: Mon Oct 05, 2009 11:22 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by e5116 »

boglechu wrote: Wed Dec 13, 2017 1:50 am I have a Vanguard Rollover IRA with 30k in it (it was started in 2016 from a rollover of a 457b). I am in process of rolling it over to current 401k so that I can do the backdoor IRA.

Once rollover complete , the original VG rollover IRA with 30k will be $0.

Should I create a new traditional IRA on vanguard's website? The old rollover IRA will be closed?
I had the same question and just played it safe and opened a new Traditional IRA account. That way, it was clearly labeled "Traditional IRA" and not "Rollover IRA" in the account title. Interestingly, after I opened and funded it, Vanguard asked me if I wanted to merge my Rollover IRA with Traditional IRA since they had the same properties. I said no. And, no, I don't plan to open a new Traditional IRA every year. Of course not. I will use the Traditional IRA I just opened for future backdoor Roth IRA contributions. So, I have one more account with $0 in it; not really a big deal. I asked the same question to somebody else who talked to Vanguard and they told him: "consult your tax professional." That's why I decided wasn't worth it and just played it safe -- not really any extra effort.
'
Now, I'm wondering if my conversion from a Traditional IRA brokerage account to my Roth IRA mutual fund account will cause issues and instead will force me to open a new Roth IRA brokerage account. :oops: I hope not....I have resisted the "upgrade" to my Roth IRA account.

Having said all that, for my wife's accounts, she has a Traditional IRA that had deductible monies in it that were converted to a Roth. I'm planning to use that same account to put in new (non-deductible) contributions to then convert those to a Roth. Maybe I'm being swayed by "labels," but because it simply says "Traditional IRA" (and has $0 in it, so deductible and non-deductible amounts never co-mingled) I think that is safe.
pangea33
Posts: 46
Joined: Mon Jan 16, 2017 11:57 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by pangea33 »

Thanks for the responses. I guess I was misreading the question.

My rollover 401K has only ever had rollover money and not traditional money. I have never wanted to roll my money into a new employer because their options are alway more limited than Vanguard. Expense ratios can be pretty predatory too. I think the Blackrock target funds through New York Life were something exorbitant like 1.4!!

I'm a late starter so other than that I only have an employer-sponsored 401K, a Roth IRA at Vanguard, and a general brokerage account that I'm still trying to figure out how to best use.
mhalley
Posts: 8657
Joined: Tue Nov 20, 2007 6:02 am

Re: I I have rollover IRA, do I need to make new traditional IRA for backdoor roth?

Post by mhalley »

That is the main reason to not comingle traditional and rollover IRAs, to avoid a problem if at some point you would want to rollover money back into a 401k. The main reasons to roll back into a 401k would be to do backdoor Roth's, it if you became eligible to contribute to the TSP, to gain access to the g fund. If you don't anticipate either if these things happening, then comibling is fine. But it is not that hard to create a new trad IRA account.
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