Commingling pre-tax with post-tax IRA contributions

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beth65
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Commingling pre-tax with post-tax IRA contributions

Post by beth65 » Wed Sep 12, 2018 1:54 pm

I have an IRA that only consists of rollover contributions from past 401ks. I know that it’s possible to commingle and add post-tax contributions, but is it just easier for documentation and tax purposes to open up a separate IRA for post-tax contributions? I would prefer to have a fewer number of accounts to track and manage, but I also don’t want to add extra documentation and tracking in the future. I’m still in my 30’s, so retirement is a long ways off.
Last edited by beth65 on Wed Sep 12, 2018 9:03 pm, edited 2 times in total.

NotWhoYouThink
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Re: Commingling IRA and tIRA

Post by NotWhoYouThink » Wed Sep 12, 2018 2:05 pm

It's better not to make post-tax contributions to an IRA unless it's an otherwise empty IRA that you plan to roll over immediately into a Roth IRA. Once you make post-tax contributions you have to keep track of that forever and always until you empty all IRAs. If you have extra money to invest and have maxed out your available 401K contributions and are not eligible to contribute to a Roth IRA, then you contribute to an after tax account.

Horsefly
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Location: Colorado, mostly

Re: Commingling IRA and tIRA

Post by Horsefly » Wed Sep 12, 2018 2:17 pm

I agree with what @NotWhoYouThink said. In addition, I have a couple of other thoughts:
  • First of all, I think your title is probably misleading. You are really asking about commingling pre-tax and post-tax contributions to a traditional IRA. I know that is a nit, but you might get better responses from all the sharp people here if you modified the title.
  • A reason to keep Rollover $$ separate and in a Rollover IRA is in case you want to do a reverse rollover to a new employer's 401K. If you think you may want to do that at some point, then stop there and don't mix other post-tax $$ (or pre-tax for that matter) in that account.
  • If you are eligible to contribute post-tax $$ to a retirement account, is there a reason why you don't want to contribute to a Roth?
Back in the 1980's I made some post-tax contributions to my IRA, before Roth IRA's were available. After some number of years I completely lost track of my post-tax contributions, so now it is all in one big pile of tIRA. When I do take it out, I will be paying taxes on it a second time. It wasn't much, so I don't lose any sleep over it, but it left me with the feeling that it is really never worth it to mix post-tax contributions with your pre-tax IRA.
Last edited by Horsefly on Wed Sep 12, 2018 2:20 pm, edited 1 time in total.

retiredjg
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Re: Commingling IRA and tIRA

Post by retiredjg » Wed Sep 12, 2018 2:19 pm

You are allowed to put IRA contributions, deductible or not, into a Rollover IRA. However, once you do so, it can become more difficult to roll the IRA into a 401k or other similar plan. That may be important to you later.

Since you indicate you want to reduce documentation and paperwork, I would suggest that you not make any non-deductible contributions to that Rollover IRA or any other IRA. Put the money into a taxable account instead.

If you do make the non-deductible contribution to an IRA, that is the beginning of a life long documentation process which you apparently do not want.

NotWhoYouThink
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Re: Commingling IRA and tIRA

Post by NotWhoYouThink » Wed Sep 12, 2018 2:42 pm

Just wanted to clarify that the IRS doesn't care if you have your "rollover IRA" at one institution and your "post-tax IRA" at another institution. As soon as you start down the road of making a post-tax contribution to any IRA held anywhere, the IRS considers it one big pot of money and you have to keep track of the basis.

Spirit Rider
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Re: Commingling IRA and tIRA

Post by Spirit Rider » Wed Sep 12, 2018 2:49 pm

In case it is not clear from the previous replies. The pre-tax balances and nondeductible basis in all your traditional, SEP and SIMPLE IRA accounts are treated as one for determining prorata taxation of any Roth conversions.

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Phineas J. Whoopee
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Re: Commingling IRA and tIRA

Post by Phineas J. Whoopee » Wed Sep 12, 2018 3:11 pm

In some states Rollover IRAs, as opposed to ones that don't qualify as rollover, have greater legal protections against judgements and bankruptcies. It may or may not be an issue where you live (or contemplate moving to).

At present I have two IRAs at different fund companies just so I don't get mixed up someday and mess up the rollover status on one of them. I may decide to consolidate later, but I can more easily see clicking on a wrong account number than logging in to the wrong institution. That's just me.

PJW

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David Jay
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Re: Commingling IRA and tIRA

Post by David Jay » Wed Sep 12, 2018 4:18 pm

Have you investigated whether or not your current employer 401K will take rollovers from your IRA. This is a way to "empty" your IRA, then you can do backdoor Roth contributions with after tax contributions.

Backdoor Roth details in the Wiki, link: https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

kaneohe
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Re: Commingling pre-tax with post-tax IRA contributions

Post by kaneohe » Thu Sep 13, 2018 9:09 am

beth65 wrote:
Wed Sep 12, 2018 1:54 pm
I have an IRA that only consists of rollover contributions from past 401ks. I know that it’s possible to commingle and add post-tax contributions, but is it just easier for documentation and tax purposes to open up a separate IRA for post-tax contributions? I would prefer to have a fewer number of accounts to track and manage, but I also don’t want to add extra documentation and tracking in the future. I’m still in my 30’s, so retirement is a long ways off.
There are legitimate reasons for separating rollover IRAs from other IRAs as discussed by others. Realize, however,if
you do this and have a separate IRA for post-tax contributions, that very soon that IRA will also have pre-tax earnings so some record keeping will be required even here. That chore is either an eternal forevermore burden or just another task depending on your mindset and inclination.

Your most recent F8606 will document your current basis and the form(and instructions) will lead you step-by-step
on how to complete. It is often worse thinking about it than actually doing it.

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