still contribute to IRA even if it is not pretax?

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Topic Author
fcf18
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Joined: Wed Jun 13, 2018 9:35 pm

still contribute to IRA even if it is not pretax?

Post by fcf18 »

hi, I am looking for some advice on investment contribution. I am over the income limit for contributing to ROTH but I heard about this thing about backdoor Roth and wanted to try it. However, my broker informs me that it's not so easy because I already have a rollover IRA with 6 figure balance there. So if I do a backdoor ROTH conversion, it's almost nearly taxable amount.

So in this situation, is it still worth it to contribute to traditional IRA or is it just better to put it in regular taxable account?

ps. I maxed out 401k, HSA already.
Last edited by fcf18 on Tue Feb 12, 2019 12:57 am, edited 1 time in total.
deskjockey
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Re: still contribute to IRA even if it is not pretax?

Post by deskjockey »

Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
Thecallofduty
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Re: still contribute to IRA even if it is not pretax?

Post by Thecallofduty »

Correct. Look up the pro rata rule for more details. If possible roll over ira to 401k then you can start contrubuting and making backdoor roth conversions.
-thecallofduty
megabad
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Re: still contribute to IRA even if it is not pretax?

Post by megabad »

deskjockey wrote: Mon Feb 11, 2019 4:52 pm Can you roll over your IRA into your 401k?
+1 just roll the IRA into your 401k. Then do backdoor Roth.
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FiveK
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Re: still contribute to IRA even if it is not pretax?

Post by FiveK »

If
a) your 401k allows incoming rollovers, and
b) you are happy with the investment choices in your 401, then
clearing out your pre-tax IRA by rolling it into your 401k is indeed a fine plan.

If either a) or b) is false, see Non-deductible traditional IRA - Bogleheads and the spreadsheet referenced therein to see if it might be beneficial for you.
Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 »

deskjockey wrote: Mon Feb 11, 2019 4:52 pm Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 »

FiveK wrote: Mon Feb 11, 2019 8:40 pm If
a) your 401k allows incoming rollovers, and
b) you are happy with the investment choices in your 401, then
clearing out your pre-tax IRA by rolling it into your 401k is indeed a fine plan.

If either a) or b) is false, see Non-deductible traditional IRA - Bogleheads and the spreadsheet referenced therein to see if it might be beneficial for you.
Thanks FiveK, will read the wiki link later
ryman554
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Re: still contribute to IRA even if it is not pretax?

Post by ryman554 »

fcf18 wrote: Tue Feb 12, 2019 12:57 am
deskjockey wrote: Mon Feb 11, 2019 4:52 pm Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
Too bad. How often do you switch jobs? =)

In all seriousness, if you have a large tIRA balance, and don't see getting it into a 401(k) in the forseeable future, I would invest in a taxable account instead. Do try to pick a fund that is both low cost and does not throw off a lot of capital gains/dividends.
Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 »

ryman554 wrote: Tue Feb 12, 2019 10:34 am
Too bad. How often do you switch jobs? =)

In all seriousness, if you have a large tIRA balance, and don't see getting it into a 401(k) in the forseeable future, I would invest in a taxable account instead. Do try to pick a fund that is both low cost and does not throw off a lot of capital gains/dividends.
after reading through the wiki, I came to the same conclusion, putting it in IRA vs taxable might be worse financially at the end and it is definitely a lot more trouble to manage.
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FiveK
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Re: still contribute to IRA even if it is not pretax?

Post by FiveK »

fcf18 wrote: Tue Feb 12, 2019 9:43 pm after reading through the wiki, I came to the same conclusion, putting it in IRA vs taxable might be worse financially at the end and it is definitely a lot more trouble to manage.
That is likely correct. It takes some unusual circumstances for the non-deductible IRA to be preferable.
ThisTimeItsDifferent
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Re: still contribute to IRA even if it is not pretax?

Post by ThisTimeItsDifferent »

fcf18 wrote: Tue Feb 12, 2019 12:57 am
deskjockey wrote: Mon Feb 11, 2019 4:52 pm Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
You could try a solo 401k for the purpose of accepting a rollover from the existing IRA and protectiing yourself from the pro rata rule.
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BolderBoy
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Re: still contribute to IRA even if it is not pretax?

Post by BolderBoy »

ThisTimeItsDifferent wrote: Tue Feb 12, 2019 10:24 pm
fcf18 wrote: Tue Feb 12, 2019 12:57 am
deskjockey wrote: Mon Feb 11, 2019 4:52 pm Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
You could try a solo 401k for the purpose of accepting a rollover from the existing IRA and protectiing yourself from the pro rata rule.
Yes, if you have a side gig generating 1099 income in any amount.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
miket29
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Re: still contribute to IRA even if it is not pretax?

Post by miket29 »

don't do it is my advice. I recently posted in the forum almost the opposite question, how to unwind such a position I had taken when I was younger and thought the non-deductible IRA was the right way to save more money. The problem you'll have down the road is the same one you face now contemplating your backdoor conversion. The IRS forces you to pro-rate money you withdraw (or convert) over all IRAs, not just the one you actually take the funds from. It is going to be a real pain to track your pre-tax basis because in retirement it will change with every withdrawal from any IRA you have. And you'll have to track it forever; as long as you have any IRA money then some of it will be allocated to pre-tax even if you have completely emptied the IRA with those funds!
ryman554
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Re: still contribute to IRA even if it is not pretax?

Post by ryman554 »

miket29 wrote: Wed Feb 13, 2019 1:37 am don't do it is my advice. I recently posted in the forum almost the opposite question, how to unwind such a position I had taken when I was younger and thought the non-deductible IRA was the right way to save more money. The problem you'll have down the road is the same one you face now contemplating your backdoor conversion. The IRS forces you to pro-rate money you withdraw (or convert) over all IRAs, not just the one you actually take the funds from. It is going to be a real pain to track your pre-tax basis because in retirement it will change with every withdrawal from any IRA you have. And you'll have to track it forever; as long as you have any IRA money then some of it will be allocated to pre-tax even if you have completely emptied the IRA with those funds!
If you have a 401(k) that accepts IRA money, you are able separate the pre-tax from the post-tax and get out of the mess.
retiredjg
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Re: still contribute to IRA even if it is not pretax?

Post by retiredjg »

fcf18 wrote: Tue Feb 12, 2019 12:57 am great point, I never considered this, but I just checked, that's not available unfortunately
If you cannot roll your IRA into the 401k, you should not use the back door. Put the money into a taxable account instead. Or pay down the mortgage or whatever.
Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 »

thanks for all the replies, at this point, I do not have the option to roll it into another 401k, but if the opportunity arises in the future, I would seriously consider doing that (especially self directed solo 401k).
retiredjg
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Re: still contribute to IRA even if it is not pretax?

Post by retiredjg »

fcf18 wrote: Thu Feb 21, 2019 10:54 am thanks for all the replies, at this point, I do not have the option to roll it into another 401k, but if the opportunity arises in the future, I would seriously consider doing that (especially self directed solo 401k).
In that case if/when you set up your solo 401k, be sure it is one that accepts rollovers. Not all do.
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