Backdoor Roth Contribution and Conversion

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Warriorpoet85
Posts: 10
Joined: Sun Dec 31, 2017 7:50 am

Backdoor Roth Contribution and Conversion

Post by Warriorpoet85 » Sun Dec 31, 2017 7:56 am

Hey everyone,

I know this has been discussed some, but it seems that there is a difference of opinions. I wanted to make sure that I am going about this the right way.

This is the first year my AGI is over the Roth limit, but also the first year I am able to contribute to a Backdoor Roth (I am a physician who just finished training, income changed dramatically in one year). Unfortunately, I waited too long and stated to open my Vanguard account after 4pm on Friday and, thus, my traditional IRA contribution will be entered on January 2nd after the New Year. Here are my questions:

1) My plan was to contribute to a backdoor Roth in 2017 and 2018 for both my wife and me. Now that my traditional IRA contribution prior to Roth conversion will happen in calendar year 2018, will this prevent me from making another $11000 contribution (5500 for both wife and me) later on in 2018? I'd hate to miss out on 11k in backdoor Roth next year because I waited too long.

2) If number 1 above isn't a problem, is there a limit on the amount you can convert to a backdoor roth? I'd be converting $22,000 in one calendar year. Can I avoid this by converting before April 15th and then reporting both the traditional IRA and conversion on my 2017 tax return? Or is this disallowed because it occurred after December 31st, 2017?

Sorry for the rookie question, but it seemed like a wrinkle that I could not find a solid answer on where everyone agreed.

Thanks, and Happy New Year!

WP

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: Backdoor Roth Contribution and Conversion

Post by livesoft » Sun Dec 31, 2017 10:24 am

You can contribute $5500 to your traditional IRA for 2017 this week (up to tax filing deadline). This assumes you have earned income in 2017.
Your spouse can contribute $5500 to their traditional IRA for 2017 this week.
You can contribute $5500 to your traditional IRA for 2018 this week (up to tax filing deadline in 2019). This assumes you will have earned income in 2018.
Your spouse can contribute $5500 to their traditional IRA for 2018 this week.


You can convert these traditional IRAs to Roth IRAs any time you want to. There is no limit, so convert all $22,000.

I am not sure what you mean by "another $11000 contribution ... later on in 2018." You can only contribute a total of $11000 for your 2018 IRAs as noted in my lines 3 and 4 above. Maybe that's what you mean.

Personally, I think it is bad karma to contribute to an IRA if one hasn't got the earned income yet to back it up yet. One might die and create a mess for heirs.
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Warriorpoet85
Posts: 10
Joined: Sun Dec 31, 2017 7:50 am

Re: Backdoor Roth Contribution and Conversion

Post by Warriorpoet85 » Sun Dec 31, 2017 10:31 am

Thanks for the help!

What I mean is that when I went to submit the original money from my bank account to vanguard it was too late on Friday and so it'll go through on January 2nd, 2018 for 2017 contribution. I'll then make another contribution likely in July with a bonus for my 2018 contribution.

Is this okay since my 2017 contributions occurred prior to April 15th, 2018 deadline for 2017 taxes but not in the 2017 calendar year?

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: Backdoor Roth Contribution and Conversion

Post by livesoft » Sun Dec 31, 2017 10:45 am

this is perfectly OK. I assume you will do conversions twice: In January with the 2017 contribution and in July with the 2018 contribution.
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Warriorpoet85
Posts: 10
Joined: Sun Dec 31, 2017 7:50 am

Re: Backdoor Roth Contribution and Conversion

Post by Warriorpoet85 » Sun Dec 31, 2017 11:12 am

livesoft wrote:
Sun Dec 31, 2017 10:45 am
this is perfectly OK. I assume you will do conversions twice: In January with the 2017 contribution and in July with the 2018 contribution.
This is exactly my plan

DSInvestor
Posts: 10891
Joined: Sat Oct 04, 2008 11:42 am

Re: Backdoor Roth Contribution and Conversion

Post by DSInvestor » Sun Dec 31, 2017 12:18 pm

Make sure you enter your Traditional IRA contributions for 2017 into your 2017 tax return. If you were covered by an employer plan, the contribution will likely be non-deductible (IRA basis) which will require form 8606 to track IRA basis. The basis from 2017 will carry forward to 2018 to help reduce/eliminate the tax cost of conversions done in 2018 and later.

2017 tax return will include 8606 tracking IRA basis $5500 . No conversions done in calendar 2017.

2018 tax return will include 8606 with $5500 basis from 2017 and $5500 from 2018. Total basis will be $11K. Conversions done in 2018 will be ~11K also handled by the 2018 8606 form.
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Warriorpoet85
Posts: 10
Joined: Sun Dec 31, 2017 7:50 am

Re: Backdoor Roth Contribution and Conversion

Post by Warriorpoet85 » Sun Dec 31, 2017 1:05 pm

DSInvestor wrote:
Sun Dec 31, 2017 12:18 pm
Make sure you enter your Traditional IRA contributions for 2017 into your 2017 tax return. If you were covered by an employer plan, the contribution will likely be non-deductible (IRA basis) which will require form 8606 to track IRA basis. The basis from 2017 will carry forward to 2018 to help reduce/eliminate the tax cost of conversions done in 2018 and later.

2017 tax return will include 8606 tracking IRA basis $5500 . No conversions done in calendar 2017.

2018 tax return will include 8606 with $5500 basis from 2017 and $5500 from 2018. Total basis will be $11K. Conversions done in 2018 will be ~11K also handled by the 2018 8606 form.
Thanks. This is very helpful. I was really worried I was going to miss the ability to do a Roth conversion in 2017 because I decided to late on it. I'll have better planning going forward, for sure.

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