Help calculating/confirming my non-deductive IRA contribution

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investordjfh
Posts: 18
Joined: Sun Apr 29, 2012 12:00 am

Help calculating/confirming my non-deductive IRA contribution

Post by investordjfh » Tue Aug 07, 2018 9:50 pm

Hi Folks,

I'm looking for some help, to confirm my understand. I'm trying to start a backdoor Roth IRA. I currently have both a traditional IRA and roth IRA account. Now, I've read the wiki and the Backdoor Roth: A Complete How-To, by Harry Sits.

Current balance:
Traditional/Rollover IRA: $117k
Roth IRA: $45K

So, my first step is to roll over my traditional IRA to my employer 401k. I've already called my 401k and confirmed they accept traditional IRA rollover.

However, I'm told I need to figure out within my Traditional IRA, what's deductible (pre-tax) vs non-deductible contributions. As I can only roll over the deductible, pre-tax money. So I'm trying to figure out how much I can roll over to my 401k. But because I've setup my contribution historically to roth ira, and over the last couple of years, always basically recharacterized it as traditional, I'm a little confused on how to calculated the deductible vs non-deductible portion.

Below is a timeline and how I calculated my non-deductible amount based on when I opened my traditional/rollver IRA account.

Would someone who has done something similar advise me if this calculation approach is correct below?

Timeline of contribution events:
2013: Contributed 5.5k to Roth.
2014: Recharactherized my 2013 5.5 Roth as traditional, recharacterized my 2014 5.5 roth to traditional, rolled over 33k from employer pension when leaving
2015: Contributed 5.5k to Roth
2016: Recharacterizations my 2015 5.5k roth to traditional, Recharacterized my 2016 5.5k roth to traditional, rolld over 33k from employer 401k when leaving
2017: Contributed 5.5k to Roth
2018: Recharacterized my 2017 5.5k roth to traditional

So, I looked at my tax records 1040 IRA deduction for each year to see if I took any IRA deduction.

2013: No deduction taken
2014: No deduction taken
2015: 5.5K deduction taken
2016: No deduction taken
2017: No deduction taken
2018: No taxes done, we're still in 2018

2013: 5.5K (since I recharacterized this from roth to traditional in 2014)
2014: 5.5K
2015: 0K
2016: 5.5K
2017: 5.5k (since I recharacterized this from roth to traditional).
2018: NA

So my total non-deductible amount is 22K.

Now, there isn't anyway for me to figure out gain/loss, so if my total balance today in the traditional/rollover IRA is 117k, does this mean I can only safely roll over $117k - 22k(non-deductible)= 95K?

Second, do I need some margin of safety, to make sure I maintain 22K post rollover into my 401k? What's a good margin because I've read IRA publication 590. How does one work to maintain this balance?

"Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA. Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution couldn’t be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or don’t roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible"

Third, assume the above is correct, I'd then need to do a conversion of 22K to roth first to basically, have no traditional IRA, and then start the a new traditional ira contribution? And assuming I maintain a small amount above the 22K, say a couple of hundred dollars, only the couple of hundred dollars would be added to my income and tax, since the 22K, I didn't take a deduction.

Thanks for reading and helping me out.
Last edited by investordjfh on Sun Aug 12, 2018 4:43 pm, edited 2 times in total.

Spirit Rider
Posts: 8683
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help calculating/confirming my non-deductive IRA contribution

Post by Spirit Rider » Tue Aug 07, 2018 10:49 pm

Can you elaborate on why you made Roth contributions from 2013 - 2017 in the first place. Why you recharacterized those contributions to a traditional IRA in 2013, 2014, 2016 and 2017. Why you didn't recharacterize in 2015.

Was your Roth MAGI from 2013 - 2017, < the limit, > the limit or in the phaseout. You can obtain transcripts of your current and three prior tax years (2014 - 2017) online.

If you didn't recharacterize the 2015 Roth contribution and your Roth IRA MAGI was > the limit, that contribution was an excess contribution and subject to a 6% excise tax in 2015 - 2017 and ech subsequent year until removed.

If you know the exact amount of your basis and calculate the pre-tax balances. There is no reason to rollover less than those balances, leaving just the basis. You should do this before rolling the basis over to a Roth IRA. It is no longer possible to recharacterize Roth conversions.

john0105
Posts: 6
Joined: Tue Aug 07, 2018 9:14 pm

Re: Help calculating/confirming my non-deductive IRA contribution

Post by john0105 » Wed Aug 08, 2018 9:26 pm

This looks reasonable to me. When I rolled over my traditional IRA to my 401k, I didn't have a non-deductible portion, but the idea is the same. Keep the best records you can showing what your doing. I would think the sequence would be:
1. Roll over entire traditional IRA except $22k to 401k.
2. Contribute max amount to traditional IRA in 2018 as non-deductible.
3. Convert entire traditional IRA balance to Roth, completing the back door.

Also, be sure to take a close look at your 401k plan and see if it's eligible for the Mega Backdoor Roth 401k.

investordjfh
Posts: 18
Joined: Sun Apr 29, 2012 12:00 am

Re: Help calculating/confirming my non-deductive IRA contribution

Post by investordjfh » Thu Aug 09, 2018 8:49 pm

Spirit Rider wrote:
Tue Aug 07, 2018 10:49 pm
Can you elaborate on why you made Roth contributions from 2013 - 2017 in the first place. Why you recharacterized those contributions to a traditional IRA in 2013, 2014, 2016 and 2017. Why you didn't recharacterize in 2015.

So before 2013, I've always just made roth ira contribution by default. I just kept this up, but each year generally during tax filing, I learned I had to recharacterize.

I recharachterized because my income was over the Roth IRA limit.

As for 2015, I took a major work break, so my income went back down below the limit.




Was your Roth MAGI from 2013 - 2017, < the limit, > the limit or in the phaseout. You can obtain transcripts of your current and three prior tax years (2014 - 2017) online.

Thanks. I didn't know that. Do I just go to the IRS website for this?

If you didn't recharacterize the 2015 Roth contribution and your Roth IRA MAGI was > the limit, that contribution was an excess contribution and subject to a 6% excise tax in 2015 - 2017 and ech subsequent year until removed.

Not the case, but thank you for pointing this out.
If you know the exact amount of your basis and calculate the pre-tax balances. There is no reason to rollover less than those balances, leaving just the basis. You should do this before rolling the basis over to a Roth IRA. It is no longer possible to recharacterize Roth conversions.

I'm always a little confused when people say, you know the basis and calculate the pre-tax balance. As you can see, the above is how I did it. Is this how you'd do it?

investordjfh
Posts: 18
Joined: Sun Apr 29, 2012 12:00 am

Re: Help calculating/confirming my non-deductive IRA contribution

Post by investordjfh » Sun Aug 12, 2018 4:42 pm

Spirit Rider wrote:
Tue Aug 07, 2018 10:49 pm
Was your Roth MAGI from 2013 - 2017, < the limit, > the limit or in the phaseout. You can obtain transcripts of your current and three prior tax years (2014 - 2017) online.
I just want to point out and thank you for this transcript fact. I was able to pull and see that I did take a $5.5K deduction and I actually did do a recharacterization. So thank you for showing me this info.

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