Convert i401k to tIRA, then backdoor Roth??

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go2sleepe
Posts: 12
Joined: Wed Dec 18, 2013 10:48 pm

Convert i401k to tIRA, then backdoor Roth??

Post by go2sleepe » Sat Jan 13, 2018 1:50 am

I have an i401k account with about $9k tax deferred. I am no longer contributing to this account and would like to close it. I do a backdoor roth IRA every year. I want to rollover the i401k funds to my Roth IRA. What is the best series of steps to accomplish this?

1) Roll the $9k in my i401k to tIRA, contribute $5500 to the tIRA, then, backdoor the entire account ($9k + $5500) to my Roth? I assume i would pay regular income tax on the $9K since this was tax deferred. The $5500 has already been taxed.

2) should i roll my i401k directly to the roth IRA and pay taxes on that rollover? I would then do the backdoor roth IRA with only my yearly $5500 contribution. Should I keep these transactions separate? Can i do this? Would one way be more beneficial?

I'm in the 39.6% bracket that I guess will be 37% starting this year.

Thanks in advance

retiredjg
Posts: 32135
Joined: Thu Jan 10, 2008 12:56 pm

Re: Convert i401k to tIRA, then backdoor Roth??

Post by retiredjg » Sat Jan 13, 2018 10:55 am

You can do either one, but I would pick option 2 myself because it keeps the transactions separate. This will be easier to interpret years down the line when I have forgotten what the heck I was doing.

Remember to keep good records on how every penny gets into your Roth IRA.

JW-Retired
Posts: 6719
Joined: Sun Dec 16, 2007 12:25 pm

Re: Convert i401k to tIRA, then backdoor Roth??

Post by JW-Retired » Sat Jan 13, 2018 7:33 pm

You are spending 37% + state on this conversion. Don't you have any tax deferred accounts like a 401k you could roll this i401k to?
JW
Retired at Last

drk
Posts: 348
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Convert i401k to tIRA, then backdoor Roth??

Post by drk » Sat Jan 13, 2018 7:49 pm

Your $9k in tax-deferred assets would be a regular Roth conversion, not a backdoor Roth. If you insist on converting that amount to Roth, the order is irrelevant. Next April, you'll owe taxes on (9,000/14,500) of the conversion amount because you cannot selectively convert after-tax funds.

Based on what you've presented, though, it makes no sense for you to do this. What problem are you trying to solve? Is there something wrong with keeping the i401k open?

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