IRA to Roth IRA conversion

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Topic Author
Ysiegel
Posts: 4
Joined: Thu Jan 10, 2019 1:03 pm

IRA to Roth IRA conversion

Post by Ysiegel » Thu Jan 10, 2019 3:12 pm

Hi,

I am planning to open a regular after tax IRA for 2018 and 2019 and then roll over to ROTH IRA.

Currently I do not have IRA account so my conversion should not generated taxes.

But I am planning to move my 401K to IRA later this year and my question is will this effect my taxes.

For example I will do the rollover in January and move 401K to IRA in February.

Do taxes go by year or specific date.

Thanks for your help.

Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: IRA to Roth IRA conversion

Post by Alan S. » Thu Jan 10, 2019 5:19 pm

Ysiegel wrote:
Thu Jan 10, 2019 3:12 pm
Hi,

I am planning to open a regular after tax IRA for 2018 and 2019 and then roll over to ROTH IRA.

Currently I do not have IRA account so my conversion should not generated taxes.

But I am planning to move my 401K to IRA later this year and my question is will this effect my taxes.

For example I will do the rollover in January and move 401K to IRA in February.

Do taxes go by year or specific date.

Thanks for your help.

If you roll the 401k to an IRA anytime this year, your most of your conversion will be taxed because of the pro rata rules of Form 8606. Form 8606 pro rates using your conversion plus the year end value of your non Roth IRA to determine the taxable portion of the conversion. Therefore if you convert 11,500 of non deductible contributions, then roll a 401k valued at 88,500 to your IRA, then 88.5% of you conversion (10,178) will be taxable.


To prevent this, either leave your 401k in place until 2020, or roll it into your new employer plan if you have one. If you wait until 2020 to do the rollover, your conversion will be tax free, but then you will have the pro rating problem if you want to repeat this process in 2020.


If your 401k is small enough and you roll it over this year to an IRA, the taxes on your conversion will be much less since the non deductible contributions will account for a much larger share of any conversion.

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David Jay
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Location: Michigan

Re: IRA to Roth IRA conversion

Post by David Jay » Thu Jan 10, 2019 10:40 pm

For the purpose of pro-rata calculations, the IRS treats all of your tIRA accounts (contributory and rollover) as one account. A rollover tIRA from your 401k is considered by the IRS as common with your contribution tIRA account.
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WoodSpinner
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Re: IRA to Roth IRA conversion

Post by WoodSpinner » Fri Jan 11, 2019 4:56 pm

OP,

I may be missing something but think we need more info....

A rollover from 401k to an IRA should not generate a taxable event ....

- are their After tax funds in the 401k ?
- are their Roth Funds in the 401k?

(Both can get moved to a Roth as part of the 401k to IRA rollover).

A conversion from an IRA to Roth is a taxable event (assuming its all Before Tax funds).

It is taxed in the year the conversion occurs.

Again, I may be missing something ...

WoodSpinner

kaneohe
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Re: IRA to Roth IRA conversion

Post by kaneohe » Fri Jan 11, 2019 10:02 pm

WoodSpinner wrote:
Fri Jan 11, 2019 4:56 pm
OP,

I may be missing something but think we need more info....

A rollover from 401k to an IRA should not generate a taxable event ....

- are their After tax funds in the 401k ?
- are their Roth Funds in the 401k?

(............................
WoodSpinner
perhaps what you are missing is that OP is planning to do a backdoor Roth and then rollover 401K to TIRA.
The rollover from 401K to TIRA does not by itself generate a taxable event. However combining it in the same yr as
a backdoor Roth makes the conversion taxable in part (pro-rata).
Last edited by kaneohe on Sat Jan 12, 2019 9:09 am, edited 1 time in total.

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celia
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Location: SoCal

Re: IRA to Roth IRA conversion

Post by celia » Sat Jan 12, 2019 3:51 am

Ysiegel wrote:
Thu Jan 10, 2019 3:12 pm
I am planning to open a regular after tax IRA for 2018 and 2019 and then roll over to ROTH IRA.
There is no such thing as an "after tax IRA" unless you really mean a "Roth IRA". Even if there were, if it was not a Roth, as soon as there is any growth, that growth would be pre-tax. Then it isn't an "after tax IRA" anymore. Therefore, I think you are referring to a Traditional IRA. (I don't want newbies to get the wrong impression here.)
Currently I do not have IRA account so my conversion should not generated taxes.

But I am planning to move my 401K to IRA later this year and my question is will this effect my taxes.
Well, if all you did was convert to a traditional IRA, then convert to Roth right away, there would be no taxes. But if you roll over any money into a traditional IRA, it WILL definitely impact your taxes.

We have a new wiki page that explains the Backdoor Roth process that you are describing. It has several examples showing what can happen if you have any money in any non-Roth IRAs besides the Backdoor Roth.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

Topic Author
Ysiegel
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Joined: Thu Jan 10, 2019 1:03 pm

Re: IRA to Roth IRA conversion

Post by Ysiegel » Sat Jan 12, 2019 5:55 am

Thank you very much for all of your answers.

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

Re: IRA to Roth IRA conversion

Post by livesoft » Sat Jan 12, 2019 7:18 am

If you look at IRS Form 8606 and how you will fill it out for your 2019 tax return next year, then you will see that rolling over your 401(k) to an IRA will affect your Roth conversion made in 2019 in a big way. Did you get that from the previous responses?

Specifically, what you think will be a tax-less conversion (your backdoor Roth), will no longer be a tax-less conversion because of the value of your IRA that is increased by a 401(k) rollover to an IRA.
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Topic Author
Ysiegel
Posts: 4
Joined: Thu Jan 10, 2019 1:03 pm

Re: IRA to Roth IRA conversion

Post by Ysiegel » Sat Jan 12, 2019 7:23 am

Yes, I did.

I appreciate everyone replies.

I will wait to do the rollover until I stop contributing to Roth IRA using back door method.

Thanks again

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WoodSpinner
Posts: 786
Joined: Mon Feb 27, 2017 1:15 pm

Re: IRA to Roth IRA conversion

Post by WoodSpinner » Sat Jan 12, 2019 11:09 am

kaneohe wrote:
Fri Jan 11, 2019 10:02 pm
WoodSpinner wrote:
Fri Jan 11, 2019 4:56 pm
OP,

I may be missing something but think we need more info....

A rollover from 401k to an IRA should not generate a taxable event ....

- are their After tax funds in the 401k ?
- are their Roth Funds in the 401k?

(............................
WoodSpinner
perhaps what you are missing is that OP is planning to do a backdoor Roth and then rollover 401K to TIRA.
The rollover from 401K to TIRA does not by itself generate a taxable event. However combining it in the same yr as
a backdoor Roth makes the conversion taxable in part (pro-rata).
Appreciate the insights ... definitely missed the BACKDOOR intent.

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