Backdoor Roth with AGI within phase out limits

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PhillyBird
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Backdoor Roth with AGI within phase out limits

Post by PhillyBird » Thu Jan 11, 2018 8:05 pm

With filing status MFJ, Roth cut off is at $199,000 for 2018. If AGI is over that amount, then it's a straight-forward 2-step backdoor Roth with 1) a non-deductible contribution to t-IRA followed by 2) conversion to Roth with proper form 8606 filing. Assume that there are no other pre-tax IRA dollars.

But what if AGI for 2018 is expected to be in the $189,000 to $199,000 phase-out range? Technically, reduced Roth contribution is still allowed based on IRS calculators. But can one simply execute the 2-step backdoor Roth for full $5,500x2 instead of waiting until year end AGI numbers and possibly settle for a reduced contribution?

kaneohe
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Re: Backdoor Roth with AGI within phase out limits

Post by kaneohe » Thu Jan 11, 2018 8:15 pm

Yes,with the backdoor Roth for the full amount you are doing a Roth conversion, not a contribution, so there is no limit on how much you can convert.
You could do it the other way too..........direct Roth contribution to max allowed and do the rest of contribution to TIRA and convert that but that sounds more complex since you have to calculate stuff.

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grabiner
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Re: Backdoor Roth with AGI within phase out limits

Post by grabiner » Thu Jan 11, 2018 10:23 pm

There is essentially no cost for doing a backdoor Roth rather than a direct contribution. Thus, if you aren't sure whether you will be within the limits, you might as well go through the backdoor.
Wiki David Grabiner

PhillyBird
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Re: Backdoor Roth with AGI within phase out limits

Post by PhillyBird » Fri Jan 12, 2018 12:51 pm

grabiner wrote:
Thu Jan 11, 2018 10:23 pm
There is essentially no cost for doing a backdoor Roth rather than a direct contribution. Thus, if you aren't sure whether you will be within the limits, you might as well go through the backdoor.
Exactly as I was hoping to hear! Thanks to both of you for responses.

WhiteMaxima
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Re: Backdoor Roth with AGI within phase out limits

Post by WhiteMaxima » Fri Jan 12, 2018 12:54 pm

Which tax form shall I use to file tax return?

The Wizard
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Re: Backdoor Roth with AGI within phase out limits

Post by The Wizard » Fri Jan 12, 2018 5:27 pm

WhiteMaxima wrote:
Fri Jan 12, 2018 12:54 pm
Which tax form shall I use to file tax return?
Form 1040...
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Duckie
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Re: Backdoor Roth with AGI within phase out limits

Post by Duckie » Fri Jan 12, 2018 5:39 pm

WhiteMaxima wrote:Which tax form shall I use to file tax return?
When making a non-deductible contribution to a TIRA or converting to a Roth IRA you always need to add IRS Form 8606 when filing your taxes. Fill out Part I for the non-deductible contribution and Part II for the conversion.

dbk
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Re: Backdoor Roth with AGI within phase out limits

Post by dbk » Sat Jan 13, 2018 1:46 am

grabiner wrote:
Thu Jan 11, 2018 10:23 pm
There is essentially no cost for doing a backdoor Roth rather than a direct contribution. Thus, if you aren't sure whether you will be within the limits, you might as well go through the backdoor.
Let's say MFJ folks does conversion of 2x$5,500 in to ROTH IRAs at the beginning of Year 2018 (I am assuming $5,500 is max you can contribute to non-deductible traditional IRA - please correct me if I am wrong). Can they ALSO contribute directly to ROTH IRAs if they are in income range of $189,000 to $199,000? I mean, can utilize both backdoor ROTH IRA and direct ROTH IRA contribution?

Slowtraveler
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Re: Backdoor Roth with AGI within phase out limits

Post by Slowtraveler » Sat Jan 13, 2018 2:22 am

I believe there is a 5500 limit to IRA contribution in total for any individual. +1000 catch up if you are 50+ years old.

The Wizard
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Re: Backdoor Roth with AGI within phase out limits

Post by The Wizard » Sat Jan 13, 2018 5:30 am

dbk wrote:
Sat Jan 13, 2018 1:46 am
grabiner wrote:
Thu Jan 11, 2018 10:23 pm
There is essentially no cost for doing a backdoor Roth rather than a direct contribution. Thus, if you aren't sure whether you will be within the limits, you might as well go through the backdoor.
Let's say MFJ folks does conversion of 2x$5,500 in to ROTH IRAs at the beginning of Year 2018 (I am assuming $5,500 is max you can contribute to non-deductible traditional IRA - please correct me if I am wrong). Can they ALSO contribute directly to ROTH IRAs if they are in income range of $189,000 to $199,000? I mean, can utilize both backdoor ROTH IRA and direct ROTH IRA contribution?
No...
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jincopunk
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Re: Backdoor Roth with AGI within phase out limits

Post by jincopunk » Sat Mar 10, 2018 3:53 pm

To follow up on this...

If I already contributed some money to my but realized I will land in one of the phase out brackets this year do I have to withdraw those contributions before I do a backdoor roth?

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grabiner
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Re: Backdoor Roth with AGI within phase out limits

Post by grabiner » Sat Mar 10, 2018 4:00 pm

jincopunk wrote:
Sat Mar 10, 2018 3:53 pm
To follow up on this...

If I already contributed some money to my [Roth IRA] but realized I will land in one of the phase out brackets this year do I have to withdraw those contributions before I do a backdoor roth?
You recharacterize the contributions, rather than withdrawing them. To do this, contact the IRA custodian, and ask for the contribution to be recharacterized from a Roth IRA contribution to a traditional IRA contribution. The amount you contributed, plus any earnings, will be in your traditional IRA, and for tax purposes, you will treat it as if you had always put it there. You can then convert the traditional IRA to a Roth IRA, paying tax on any earnings.
Wiki David Grabiner

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