Help with IRA Cleanup

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bjc3
Posts: 72
Joined: Mon Sep 14, 2015 4:00 pm

Help with IRA Cleanup

Post by bjc3 » Mon Jan 22, 2018 6:46 pm

Since DW and I are over the income limit, we would like to begin utilizing the backdoor Roth method for IRA contributions this year (2018). Admittedly, I have made a bit of a mess of our IRAs over the past few years (ignorance & procrastination), but I'm working to clean it up now. I'm hoping to get a bit of help from the forum on the best/most efficient way to do that.

I've posted the approximate numbers from my IRA below. Since DW's account is in the same situation, your answers can be applied to her account as well.

Rollover (Traditional) IRA dating back to 2011:
> 401k rollovers = $35k
> Deductible contributions = $11k (before we hit the income limit)
> Non-Deductible contributions = $27,500 (after we passed the income limit)
> Gains = $20k

I know that I can transfer the $35k from 401k rollovers into my existing employer plan. I'm in the process of doing that now.

Questions:
1) Is there anything that we can do in order to transfer the $27,500 in non-deductible contributions without paying taxes? I would prefer not to pay taxes again (double taxed) since these are post-tax dollars. We have submitted 8606s for each year that we contributed.
2) Is it correct to assume that we will have to pay taxes on the $31k in deductible contributions & gains in order to convert them to a Roth account? Are there any clever, but legal, ways around this?
3) Anything else that we are missing? The end goal is to decrease the amount of tax that we have to pay during Roth conversion.

Any feedback is appreciated.

Thanks

...and yes, I have read the wiki :happy

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Epsilon Delta
Posts: 7036
Joined: Thu Apr 28, 2011 7:00 pm

Re: Help with IRA Cleanup

Post by Epsilon Delta » Mon Jan 22, 2018 7:09 pm

bjc3 wrote:
Mon Jan 22, 2018 6:46 pm
2) Is it correct to assume that we will have to pay taxes on the $31k in deductible contributions & gains in order to convert them to a Roth account? Are there any clever, but legal, ways around this?
The best thing to do with these is to move them to your employers 401(k) along with the 35k rollover IRA. There is no tax law reason you can't do this, but it does require the cooperation of your employer.
bjc3 wrote:
Mon Jan 22, 2018 6:46 pm
1) Is there anything that we can do in order to transfer the $27,500 in non-deductible contributions without paying taxes? I would prefer not to pay taxes again (double taxed) since these are post-tax dollars. We have submitted 8606s for each year that we contributed.
If you can get all the pre-tax money out of your IRA into a 401(k) you can convert the $27,500 in non-deductible contributions to a Roth tax free (or possibly paying a little tax on the small amount of earnings in the IRA while you coordinate these two moves).

bjc3
Posts: 72
Joined: Mon Sep 14, 2015 4:00 pm

Re: Help with IRA Cleanup

Post by bjc3 » Mon Jan 22, 2018 7:55 pm

Epsilon Delta wrote:
Mon Jan 22, 2018 7:09 pm
bjc3 wrote:
Mon Jan 22, 2018 6:46 pm
2) Is it correct to assume that we will have to pay taxes on the $31k in deductible contributions & gains in order to convert them to a Roth account? Are there any clever, but legal, ways around this?
The best thing to do with these is to move them to your employers 401(k) along with the 35k rollover IRA. There is no tax law reason you can't do this, but it does require the cooperation of your employer.
Excellent! Glad I asked, bc I honestly didn't know that was an option. Reading up on her employer plan now (confirmed that mine allows it :D).

Follow up question --- I'm assuming that we will need some type of documented "proof" that the transferred amounts are accurate in case of an audit, right? Besides the 8606s and annual statements from our custodians detailing rollovers, contributions and gains, are there any other documents that we need? Just trying to think ahead.

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Duckie
Posts: 5382
Joined: Thu Mar 08, 2007 2:55 pm

Re: Help with IRA Cleanup

Post by Duckie » Wed Jan 24, 2018 5:33 pm

bjc3 wrote:I'm assuming that we will need some type of documented "proof" that the transferred amounts are accurate in case of an audit, right? Besides the 8606s and annual statements from our custodians detailing rollovers, contributions and gains, are there any other documents that we need?
Make sure you save the Form 5498 you get from IRA custodians each year in May.

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