Not just another Back Door Roth question

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Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Not just another Back Door Roth question

Post by Boatguy » Mon Jan 20, 2020 7:56 pm

I was able to roll all of my existing pretax IRAs into one of my 401k plans last year In my haste to fund a traditional IRA and then roll it into a Roth for tax year 2019, I put $7k (I’m 66) into an existing empty Vanguard Rollover IRA account, and then rolled that into a Roth. I suspect that making my 2019 contribution via a Rollover IRA account was the wrong thing to do.

Was it and, if so, what now? Thanks for your help.

Makefile
Posts: 208
Joined: Fri Apr 22, 2016 11:03 pm

Re: Not just another Back Door Roth question

Post by Makefile » Mon Jan 20, 2020 8:13 pm

I don't think it's an issue. I can only think of two instances where contributory vs. rollover IRA would matter.

There used to be laws, since repealed, saying that an IRA could only be rolled into an employer plan if the money originally came out of the same type of employer plan. For example, you couldn't put 403(b) money into a 401(k), or roll into a 401(k) money that was originally put directly into a plain old IRA. Outdated plans are still able to keep those restrictions if they still want to.

The other is that if you file bankruptcy, there might be better protection for a rollover IRA versus a contributory one.

So, you have "contaminated" that rollover IRA now with regard to both of these. But, as you say, it's empty now anyway.

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

Re: Not just another Back Door Roth question

Post by retiredjg » Mon Jan 20, 2020 8:16 pm

Not an issue.

Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Re: Not just another Back Door Roth question

Post by Boatguy » Mon Jan 20, 2020 8:24 pm

That’s a relief.....Thanks to you both.

Katietsu
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Joined: Sun Sep 22, 2013 1:48 am

Re: Not just another Back Door Roth question

Post by Katietsu » Mon Jan 20, 2020 9:08 pm

What is your concern? You have described the exact steps for a Backdoor Roth?

Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Re: Not just another Back Door Roth question

Post by Boatguy » Mon Jan 20, 2020 9:44 pm

My concern is that I funded my 2019 IRA by contributing to an existing (and empty) Rollover IRA account rather than a Traditional IRA account. After rolling it into a Roth, I became concerned that this could cause a problem in that the IRS would somehow deem this to be an improper contribution.

shess
Posts: 424
Joined: Wed May 17, 2017 12:02 am

Re: Not just another Back Door Roth question

Post by shess » Mon Jan 20, 2020 10:17 pm

Boatguy wrote:
Mon Jan 20, 2020 9:44 pm
My concern is that I funded my 2019 IRA by contributing to an existing (and empty) Rollover IRA account rather than a Traditional IRA account. After rolling it into a Roth, I became concerned that this could cause a problem in that the IRS would somehow deem this to be an improper contribution.
As others have said, it's not an issue. But, personally, I'd probably arrange to use a fresh IRA next year, and work to get the Rollover account closed. My reasoning is that IRA provider reps that you get when you call for support often aren't as well-informed as you might like, so having odd notations on your account can result in odd interactions with the provider. I mean like you call with a straight-forward request, and they push back because they think your request isn't allowed. IMHO it is better to have the account appear as plain-vanilla as possible.

I cannot think of any utility to retaining an empty "Rollover IRA" account. Once you've transferred the rollover funds out, you no longer get any advantage from it.

Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Re: Not just another Back Door Roth question

Post by Boatguy » Mon Jan 20, 2020 10:32 pm

shess wrote:
Mon Jan 20, 2020 10:17 pm
Boatguy wrote:
Mon Jan 20, 2020 9:44 pm
My concern is that I funded my 2019 IRA by contributing to an existing (and empty) Rollover IRA account rather than a Traditional IRA account. After rolling it into a Roth, I became concerned that this could cause a problem in that the IRS would somehow deem this to be an improper contribution.
As others have said, it's not an issue. But, personally, I'd probably arrange to use a fresh IRA next year, and work to get the Rollover account closed. My reasoning is that IRA provider reps that you get when you call for support often aren't as well-informed as you might like, so having odd notations on your account can result in odd interactions with the provider. I mean like you call with a straight-forward request, and they push back because they think your request isn't allowed. IMHO it is better to have the account appear as plain-vanilla as possible.

I cannot think of any utility to retaining an empty "Rollover IRA" account. Once you've transferred the rollover funds out, you no longer get any advantage from it.
I agree that my next move should be to close this account. I’ll open a new Traditional IRA account when making my next contribution. Thanks.

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