About to do my first Backdoor Roth - nervous!

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Topic Author
JimmyJammy
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About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

Hi,

I think I'm about to do my first Backdoor Roth. I'm a bit nervous because I'm afraid I'm going to miss a "gotcha".

I'm in New York and 44 and I have NO traditional IRAs. I have two 401(k)s and one Roth IRA. So, I should be able to do this without much or any tax, right? My wife has some large traditional IRAs but those should not affect me right ?

I was going to follow the instructions on this "Physician on FIRE" website (not that I'm a physician): https://www.physicianonfire.com/backdoor/

I would wait a week or so after creating the IRA to do the Roth conversion.

I still haven't done my 2019 taxes so I guess I can do this for 2019.

Any gotchas or pitfalls I might be missing?
Dennisl
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Re: About to do my first Backdoor Roth - nervous!

Post by Dennisl »

JimmyJammy wrote: Mon Jun 15, 2020 11:41 am Hi,

I think I'm about to do my first Backdoor Roth. I'm a bit nervous because I'm afraid I'm going to miss a "gotcha".

I'm in New York and 44 and I have NO traditional IRAs. I have two 401(k)s and one Roth IRA. So, I should be able to do this without much or any tax, right? My wife has some large traditional IRAs but those should not affect me right ?

I was going to follow the instructions on this "Physician on FIRE" website (not that I'm a physician): https://www.physicianonfire.com/backdoor/

I would wait a week or so after creating the IRA to do the Roth conversion.

I still haven't done my 2019 taxes so I guess I can do this for 2019.

Any gotchas or pitfalls I might be missing?
No, too late for 2019. Deadline was 4/15/20. Do for 2020. I like the POF walkthrough. I would do conversion asap, rather than waiting a week to do the conversion. You might collect interest in that time and that creates it's own set of headaches.
campy2010
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Re: About to do my first Backdoor Roth - nervous!

Post by campy2010 »

I was also nervous the first time I did this and I found a very handy "how to" that outlined each step on the Vanguard site. It's a little bit out of date because Vanguard has made some changes to its website recently, but the gist is still the same.

https://thephysicianphilosopher.com/fir ... -vanguard/
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

Regarding 2019:

I was going by this article:https://www.investmentnews.com/delay-in ... ded-190342


"Now that Treasury Secretary Steven Mnuchin has extended the 2019 tax filing date to July 15, the deadline for making a 2019 contribution to an individual retirement account or Roth IRA is automatically extended to July 15."

Is this article wrong?
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

Here's another article that says we have until July 15th to make IRA contributions for 2019:


Deadline for Making 2019 IRA Contributions (both Roth and Traditional) Extended to July 15, 2020

https://www.mysolo401k.net/deadline-for ... 2C%202020.
tashnewbie
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Re: About to do my first Backdoor Roth - nervous!

Post by tashnewbie »

Yeah, the deadline for Roth conversions contributions was automatically extended to 7/15, along with the tax filing deadline.

Your wife's TIRA will not affect your backdoor conversion.

I don't think there are any "gotchas."

Follow this tutorial if you need extra information about the process and how to fill out Form 8606: https://www.whitecoatinvestor.com/backd ... -tutorial/
Last edited by tashnewbie on Mon Jun 15, 2020 1:37 pm, edited 1 time in total.
lakpr
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Re: About to do my first Backdoor Roth - nervous!

Post by lakpr »

You are correct about the contributions deadline being July 15th, you have 1 month from now exactly.

To me it looks like you are good to go! Best of luck!
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

Thanks all!
HomeStretch
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Re: About to do my first Backdoor Roth - nervous!

Post by HomeStretch »

You posted you do not have a Traditional (pretax) IRA. Do you have a SEP-IRA or a SIMPLE IRA balance?
retiredjg
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Re: About to do my first Backdoor Roth - nervous!

Post by retiredjg »

JimmyJammy wrote: Mon Jun 15, 2020 11:41 am I still haven't done my 2019 taxes so I guess I can do this for 2019.
Wrong. :happy

There is no "back door Roth" for 2019.

Yes, you can still do a contribution for 2019. That will be documented on your 2019 taxes Form 8606. You've got that part right. But a conversion done in 2020 will be documented on your 2020 taxes, not on the 2019 taxes.

The fact that you didn't already understand this means you probably have a little learning to do. I suggest you download a Form 8606 for 2018 and for 2019. Pretend you made a 2018 contribution in 2019 and did a conversion of that contribution in 2019.

See if you can figure out the paperwork - do it by hand. If not, you are not ready yet. :happy

Even if you do figure out the paperwork (I think you will if you read the form), that does not mean you can get tax software to produce the Form properly for you so you might have to work on that as well. I suggest you get familiar now rather than later. Do not assume a tax-preparer will be able to do this for you.
retiredjg
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Re: About to do my first Backdoor Roth - nervous!

Post by retiredjg »

tashnewbie wrote: Mon Jun 15, 2020 11:58 am Yeah, the deadline for backdoor Roth conversions was automatically extended to 7/15, along with the tax filing deadline.
There is never a deadline for the conversion step of this process. There is a deadline for the contribution step - and, yes, it has been extended to 7/15.
tashnewbie
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Re: About to do my first Backdoor Roth - nervous!

Post by tashnewbie »

retiredjg wrote: Mon Jun 15, 2020 12:26 pm
tashnewbie wrote: Mon Jun 15, 2020 11:58 am Yeah, the deadline for backdoor Roth conversions was automatically extended to 7/15, along with the tax filing deadline.
There is never a deadline for the conversion step of this process. There is a deadline for the contribution step - and, yes, it has been extended to 7/15.
Thanks for clarification!
VAslim16
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Re: About to do my first Backdoor Roth - nervous!

Post by VAslim16 »

Can one do a backdoor Roth if she has no earned income because of living overseas and using foreign earned income exemption?
lakpr
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Re: About to do my first Backdoor Roth - nervous!

Post by lakpr »

VAslim16 wrote: Mon Jun 15, 2020 12:39 pm Can one do a backdoor Roth if she has no earned income because of living overseas and using foreign earned income exemption?
No. Backdoor Roth is a process where you contribute "earned income" up to $6k per year to a Traditional IRA, and assuming you have no other pre-tax assets, convert that to Roth IRA.

If you have no earned income, the whole process is dead in the water.

You MAY BE able to have a Roth, either direct or backdoor, if you use Foreign Tax Credit instead
VAslim16
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Re: About to do my first Backdoor Roth - nervous!

Post by VAslim16 »

lakpr wrote: Mon Jun 15, 2020 12:43 pm
VAslim16 wrote: Mon Jun 15, 2020 12:39 pm Can one do a backdoor Roth if she has no earned income because of living overseas and using foreign earned income exemption?
No. Backdoor Roth is a process where you contribute "earned income" up to $6k per year to a Traditional IRA, and assuming you have no other pre-tax assets, convert that to Roth IRA.

If you have no earned income, the whole process is dead in the water.

You MAY BE able to have a Roth, either direct or backdoor, if you use Foreign Tax Credit instead
Awesome. Thanks for the info lakpr.
rocketman938
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Re: About to do my first Backdoor Roth - nervous!

Post by rocketman938 »

Regarding the July 15th deadline for 2019 tax filing, I have already filed for for my 2019 taxes. I will earn considerably more in 2020 than I did in 2019.
I would like to transfer money from my traditional IRA to a Roth IRA and pay the 2019 marginal rate instead of the 2020 rate.
Can I make the transfer before July 15th and then file an amended 2019 tax return?
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

HomeStretch wrote: Mon Jun 15, 2020 12:03 pm You posted you do not have a Traditional (pretax) IRA. Do you have a SEP-IRA or a SIMPLE IRA balance?
No, I only have a solo 401(k), a work 401(k) and a Roth IRA.
lakpr
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Re: About to do my first Backdoor Roth - nervous!

Post by lakpr »

rocketman938 wrote: Mon Jun 15, 2020 2:02 pm Regarding the July 15th deadline for 2019 tax filing, I have already filed for for my 2019 taxes. I will earn considerably more in 2020 than I did in 2019.
I would like to transfer money from my traditional IRA to a Roth IRA and pay the 2019 marginal rate instead of the 2020 rate.
Can I make the transfer before July 15th and then file an amended 2019 tax return?
Nope. Roth conversions are taxed in the calendar year they are done. You do not get to choose
retiredjg
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Re: About to do my first Backdoor Roth - nervous!

Post by retiredjg »

rocketman938 wrote: Mon Jun 15, 2020 2:02 pm Regarding the July 15th deadline for 2019 tax filing, I have already filed for for my 2019 taxes. I will earn considerably more in 2020 than I did in 2019.
I would like to transfer money from my traditional IRA to a Roth IRA and pay the 2019 marginal rate instead of the 2020 rate.
Can I make the transfer before July 15th and then file an amended 2019 tax return?
Welcome to the forum. :happy

Unfortunately no. Any conversion done in 2020 will be included on your 2020 tax return at your 2020 rates.

If you did not make any contribution to IRA in 2019, you could make a non-deductible contribution now to tIRA and convert to Roth....but do not do this is you have any other money in tIRA (Including SIMPLE IRA and SEP IRA). It sounds like you do have money in tIRA.

The money in tIRA could theoretically be moved into a 401k and you could do that though.
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anon_investor
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Re: About to do my first Backdoor Roth - nervous!

Post by anon_investor »

JimmyJammy wrote: Mon Jun 15, 2020 3:24 pm
HomeStretch wrote: Mon Jun 15, 2020 12:03 pm You posted you do not have a Traditional (pretax) IRA. Do you have a SEP-IRA or a SIMPLE IRA balance?
No, I only have a solo 401(k), a work 401(k) and a Roth IRA.
You should be good. Just make sure you understand how to fill out the Form 8606. It will be less than straight forward since your 2019 contribution was technically made during the 2020 calendar year (which is fine, it just means the form is filled out differently than if the 2019 contribution was made in 2019 and converted in 2019). Since your conversion will occur in 2020, the information about the conversion will be on your 2020 Form 8606.
Dennisl
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Re: About to do my first Backdoor Roth - nervous!

Post by Dennisl »

JimmyJammy wrote: Mon Jun 15, 2020 11:49 am Regarding 2019:

I was going by this article:https://www.investmentnews.com/delay-in ... ded-190342


"Now that Treasury Secretary Steven Mnuchin has extended the 2019 tax filing date to July 15, the deadline for making a 2019 contribution to an individual retirement account or Roth IRA is automatically extended to July 15."

Is this article wrong?
I guess I'm out of touch since I did mine in Jan. I'd go with what the brainchild has been saying, that the deadline has been extended.
HomeStretch
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Re: About to do my first Backdoor Roth - nervous!

Post by HomeStretch »

JimmyJammy wrote: Mon Jun 15, 2020 3:24 pm
HomeStretch wrote: Mon Jun 15, 2020 12:03 pm You posted you do not have a Traditional (pretax) IRA. Do you have a SEP-IRA or a SIMPLE IRA balance?
No, I only have a solo 401(k), a work 401(k) and a Roth IRA.
Sounds like you are good to go! Consider working through Form 8606 beforehand as suggested by retiredjg.
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FiveK
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Re: About to do my first Backdoor Roth - nervous!

Post by FiveK »

rocketman938 wrote: Mon Jun 15, 2020 2:02 pm Regarding the July 15th deadline for 2019 tax filing, I have already filed for for my 2019 taxes. I will earn considerably more in 2020 than I did in 2019.
I would like to transfer money from my traditional IRA to a Roth IRA and pay the 2019 marginal rate instead of the 2020 rate.
Can I make the transfer before July 15th and then file an amended 2019 tax return?
As others have noted you can't do a conversion in one year but have it taxed in a different year.

If you made a traditional contribution for 2019, whether you did that in 2019 or 2020, you could still recharacterize that as a Roth contribution for 2019 (provided you meet the Roth contribution income limits).
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

I just made my 2019 $6000 contribution to my Trad Roth!

Now the question is when to convert it. tomorrow? next week?

It's in the Fed settlement fund.
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FiveK
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Re: About to do my first Backdoor Roth - nervous!

Post by FiveK »

JimmyJammy wrote: Tue Jun 16, 2020 11:50 am I just made my 2019 $6000 contribution to my Trad Roth!

Now the question is when to convert it. tomorrow? next week?

It's in the Fed settlement fund.
Assuming that by "Trad Roth" you mean "traditional IRA account", you may convert it as soon as the brokerage allows. Meanwhile, do two draft forms 8606: one for 2019 (to cover the contribution) and one for 2020 (to cover the conversion).

Getting the 8606 correct may be straightforward for you, but problems with it are not rare.
Topic Author
JimmyJammy
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Re: About to do my first Backdoor Roth - nervous!

Post by JimmyJammy »

Yes I meant traditional IRA :)

Alright I’ll attempt two drafts of the form.
retiredjg
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Re: About to do my first Backdoor Roth - nervous!

Post by retiredjg »

FiveK wrote: Tue Jun 16, 2020 12:16 pm Getting the 8606 correct may be straightforward for you, but problems with it are not rare.
Well, that's a particularly nice way to put it. I may steal that language. :happy
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