Back door ROTH eligibility

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pepperz
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Back door ROTH eligibility

Post by pepperz »

Can anyone with a (non-ROTH) IRA take advantage of a Back door ROTH conversion?

I understand it’s primarily for those who don’t qualify because they exceed the income limit.

However, let’s say a person makes $100K/year and maxes their ROTH and regular IRA.... can that person still convert funds (Ie $18K) from the regular IRA into to ROTH or are they not allowed because they already have a ROTH?
Thesaints
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Re: Back door ROTH eligibility

Post by Thesaints »

Not sure I understand.
Everybody can always convert traditional IRA funds into a Roth. They key is doing so without paying taxes.
Topic Author
pepperz
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Re: Back door ROTH eligibility

Post by pepperz »

Thesaints wrote: Thu Dec 07, 2017 2:17 pmThey key is doing so without paying taxes.
Please explain- How can anyone contribute to a ROTH without paying taxes?
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Duckie
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Re: Back door ROTH eligibility

Post by Duckie »

pepperz wrote:I understand it’s primarily for those who don’t qualify because they exceed the income limit.
The backdoor method is specifically for people who exceed the income limit. There's no point otherwise. If you don't exceed the limit you can still convert, but it's not considered a "backdoor Roth", it's just a regular conversion.
[L]et’s say a person makes $100K/year and maxes their ROTH and regular IRA.... can that person still convert funds (Ie $18K) from the regular IRA into to ROTH or are they not allowed because they already have a ROTH?
You can convert as much as you want from a TIRA to a Roth IRA. You'll just have to pay the taxes on the conversion.
Thesaints
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Re: Back door ROTH eligibility

Post by Thesaints »

pepperz wrote: Thu Dec 07, 2017 4:58 pm
Thesaints wrote: Thu Dec 07, 2017 2:17 pmThey key is doing so without paying taxes.
Please explain- How can anyone contribute to a ROTH without paying taxes?
Don't have a tIRA, or if you have it roll it over to an employer sponsored plan before 12/31. Of course I'm referring to extra taxes, in addition to those one already paid on income.
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Earl Lemongrab
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Re: Back door ROTH eligibility

Post by Earl Lemongrab »

Backdoor Roth is a very specific thing. For someone who has a MAGI too high for a regular Roth IRA contribution, and who has no other IRAs with pretax amounts, they contribute a non-deductible amount to a TIRA and then convert to a Roth. If done soon after contribution, there will be little or no tax due.
Thesaints
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Re: Back door ROTH eligibility

Post by Thesaints »

That said, nothing bars someone below the MAGI threshold to use the same procedure.
In fact, it could be an advisable practice for those with variable income who contribute early in the year: Use the backdoor, if you go over the MAGI you will be ok. No harm done if you don't.
tesuzuki2002
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Re: Back door ROTH eligibility

Post by tesuzuki2002 »

pepperz wrote: Thu Dec 07, 2017 2:11 pm Can anyone with a (non-ROTH) IRA take advantage of a Back door ROTH conversion?

I understand it’s primarily for those who don’t qualify because they exceed the income limit.

However, let’s say a person makes $100K/year and maxes their ROTH and regular IRA.... can that person still convert funds (Ie $18K) from the regular IRA into to ROTH or are they not allowed because they already have a ROTH?

What you're asking is confusing. A back door Roth conversion is simply a non-deductible contribution, Currently ($5500.00) to a TIRA that is moved into the Roth IRA.
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retiredjg
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Re: Back door ROTH eligibility

Post by retiredjg »

pepperz wrote: Thu Dec 07, 2017 2:11 pm Can anyone with a (non-ROTH) IRA take advantage of a Back door ROTH conversion?

I understand it’s primarily for those who don’t qualify because they exceed the income limit.

However, let’s say a person makes $100K/year and maxes their ROTH and regular IRA.... can that person still convert funds (Ie $18K) from the regular IRA into to ROTH or are they not allowed because they already have a ROTH?
You are asking more than one question.

Anyone can use the "back door" to get money into Roth IRA. People who have other non-Roth IRAs find that it is not beneficial because all the IRAs have to be pro-rated. But I don't think this is what you really want to know.

I think what you are really asking is whether anyone can do "Roth conversions" (conversion of tIRA to Roth IRA). Roth conversions are not the same thing as the "back door". The fact that a Roth conversion is the second step in the "back door" maneuver makes people get the two confused. A lot. :happy

Yes, a person can contribute to a Roth IRA and also convert tIRA to Roth IRA in the same year. There is a $5,500 limit on contribution to IRA (traditional or Roth or both combined). However, there is no limit on how much of an IRA you can convert to Roth IRA in any year. You can convert a little, a lot, or all if you want and if you have the money to pay the taxes.

This does not mean it is a good idea. In fact, it might be a pretty dumb idea.

Why don't you tell us more about what you have and what you want to do? We need to know your tax bracket. If you don't know how to look that up, just ask.
Topic Author
pepperz
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Re: Back door ROTH eligibility

Post by pepperz »

It’s really just curiosity and education for me at this point.

We still qualify for ROTH contributions in 2017 but that will likely change next year as income increases. Just want to get an understanding of how it works and when it’s benificial.
Why don't you tell us more about what you have and what you want to do? We need to know your tax bracket. If you don't know how to look that up, just ask.
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retiredjg
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Re: Back door ROTH eligibility

Post by retiredjg »

Well, it is NOT beneficial if you have other IRAs - SIMPLE, SEP, Rollover, etc. Roth IRA is OK.
hightower
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Re: Back door ROTH eligibility

Post by hightower »

If you're asking if you can place 5500 in a regular Roth AND put another 5500 in a Roth using the backdoor procedure in the same year, then the answer is no. You're only allowed to put 5500/yr in a Roth IRA no matter how you get it in there.
There is no eligibility for it. Anyone can put money into a Roth, no matter how much they make...just have to use a backdoor route if you make too much.
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