Married Filing Separately & A Roth IRA Mistake

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orygunboxer
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Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

In a typical year, my wife and I file our taxes Married Filing Jointly (MFJ). We also typically do a max Roth IRA contribution towards to the beginning of the year. The thought process being that we know in advance that we qualify due to income levels and we also want to maximize the amount of time that our money is in the market. 2020 being a unique year in many ways, it is likely quite advantageous for us to file our taxes Married Filing Separately (MFS). The issue being that we have already contributed our max Roth IRA amount for 2020 and as you may know, one of the downsides to MFS is that it severely limits your Roth contribution limits. Essentially if we moved forward with the MFS filing, we both have over-contributed to our individual Roth IRAs.

For anybody that has experience with a similar situation... Do you have any suggestions for options we have? Thank you in advance for taking the time to answer. We greatly appreciate as our tax filing deadline is looming. This is the final piece for us.
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arcticpineapplecorp.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by arcticpineapplecorp. »

can you first tell us what it was about 2020 that made it "likely quite advantageous for us to file our taxes Married Filing Separately (MFS)"?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
retiredjg
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

There are a couple of options.

1. Contact your custodian and have them return your 2020 contribution along with associated earnings. The earnings will be taxable with your 2020 income, which might mean filing an amended return if you have already filed. The earnings will also have a 10% penalty. This will solve your excess contribution problem.

Or....

2. If your contributions have made a lot of earnings, it might be better to leave the contribution there till after October 15 (the last time you can have your contribution returned), then withdraw the contributions leaving the earnings in the Roth IRA. You will pay a 6% excise tax on the excess contribution using form 5329 with your 2021 taxes but you do not have to pay taxes on the earings.

You could do option 2 if the tax on the earnings are greater than the 6% excise tax on the contribution.

I don't know a lot about this second option - just learning. You need to look for posts by Alan S. (starting about March this year) for more thorough instructions. Or maybe others can post a link.

Welcome to the forum. :happy
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

arcticpineapplecorp. wrote: Wed Apr 28, 2021 10:28 am can you first tell us what it was about 2020 that made it "likely quite advantageous for us to file our taxes Married Filing Separately (MFS)"?
Sure. It appears to be coming down to the discrepancy between the income of my partner and myself and how that is treated by the many stimulus packages we saw in 2020 and continuing into 2021. We also have one dependent. There are things we do not qualify for when we file jointly. But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Wed Apr 28, 2021 10:46 am There are a couple of options.

1. Contact your custodian and have them return your 2020 contribution along with associated earnings. The earnings will be taxable with your 2020 income, which might mean filing an amended return if you have already filed. The earnings will also have a 10% penalty. This will solve your excess contribution problem.

Or....

2. If your contributions have made a lot of earnings, it might be better to leave the contribution there till after October 15 (the last time you can have your contribution returned), then withdraw the contributions leaving the earnings in the Roth IRA. You will pay a 6% excise tax on the excess contribution using form 5329 with your 2021 taxes but you do not have to pay taxes on the earings.

You could do option 2 if the tax on the earnings are greater than the 6% excise tax on the contribution.

I don't know a lot about this second option - just learning. You need to look for posts by Alan S. (starting about March this year) for more thorough instructions. Or maybe others can post a link.

Welcome to the forum. :happy
Thank you for this. I am going to do a search on Alan S. and see what comes up. I will report back to this forum with my findings.
aristotelian
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Re: Married Filing Separately & A Roth IRA Mistake

Post by aristotelian »

If you don't have Traditional IRA's, you could recharacterize your Roth contributions to Traditional, then convert them back to Roth (also known as Backdoor Roth).
retiredjg
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

orygunboxer wrote: Wed Apr 28, 2021 10:52 am
arcticpineapplecorp. wrote: Wed Apr 28, 2021 10:28 am can you first tell us what it was about 2020 that made it "likely quite advantageous for us to file our taxes Married Filing Separately (MFS)"?
Sure. It appears to be coming down to the discrepancy between the income of my partner and myself and how that is treated by the many stimulus packages we saw in 2020 and continuing into 2021. We also have one dependent. There are things we do not qualify for when we file jointly. But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
There are quite a number of things that people are not eligible for when filing separately. Roth IRA is just one of them. As I recall, several of the tax credits are not available. Be sure to do thorough research.

Another alternative that I did not think of earlier is to have the Roth IRA contribution re-characterized to a traditional IRA contribution. Then do a Roth conversion....and the money ends up in Roth IRA. This option is no good if there is other money in tIRA (including SEP IRA, SIMPLE IRA, and rollover IRA). This is known as the "backdoor" Roth and the paperwork can be tricky.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by CoastLawyer2030 »

orygunboxer wrote: Wed Apr 28, 2021 10:52 am
arcticpineapplecorp. wrote: Wed Apr 28, 2021 10:28 am can you first tell us what it was about 2020 that made it "likely quite advantageous for us to file our taxes Married Filing Separately (MFS)"?
Sure. It appears to be coming down to the discrepancy between the income of my partner and myself and how that is treated by the many stimulus packages we saw in 2020 and continuing into 2021. We also have one dependent. There are things we do not qualify for when we file jointly. But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
I think you are jumping the gun here.

I would consult a tax professional about this and not trust "dummy" tax returns. There are extremely few scenarios where MFS is better than MFJ. You might be one of those but the odds are against it.

Pay the $200 or whatever to have a professional look at this.

Then make your move (if necessary).
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Re: Married Filing Separately & A Roth IRA Mistake

Post by ipdiddly »

retiredjg wrote: Wed Apr 28, 2021 10:46 am There are a couple of options.

1. Contact your custodian and have them return your 2020 contribution along with associated earnings. The earnings will be taxable with your 2020 income, which might mean filing an amended return if you have already filed. The earnings will also have a 10% penalty. This will solve your excess contribution problem.
Is that the same as "recharacterization? Can the OP have his custodian recharacterize the Roth contribution as Trad IRA contribution (non-deductible)? That way the funds would continue to be in an IRA account, then the OP could convert those funds to Roth (i.e., backdoor Roth conversion). I'm not sure what happens with the earnings in that scenario, but I suspect someone on this forum can clarify that.
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ipdiddly
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Re: Married Filing Separately & A Roth IRA Mistake

Post by ipdiddly »

CoastLawyer2030 wrote: Wed Apr 28, 2021 11:11 am
I think you are jumping the gun here.

I would consult a tax professional about this and not trust "dummy" tax returns. There are extremely few scenarios where MFS is better than MFJ. You might be one of those but the odds are against it.
I suspect there are many folks who found that they qualified for significant stimulus payments by filing MFS. My son and DIL file MFS every year in order to keep her income-based student loan payments at reasonable levels. This year, with a new baby, she got a substantial stimulus addition to her refund.

If you file MFS, you technically can't make a Roth contribution. However, every year they make a backdoor Roth. Frankly, it's a big pain in the butt filing MFS - i do their tax returns. But, unfortunately it is necessary.
retiredjg
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

ipdiddly wrote: Wed Apr 28, 2021 11:12 am
retiredjg wrote: Wed Apr 28, 2021 10:46 am There are a couple of options.

1. Contact your custodian and have them return your 2020 contribution along with associated earnings. The earnings will be taxable with your 2020 income, which might mean filing an amended return if you have already filed. The earnings will also have a 10% penalty. This will solve your excess contribution problem.
Is that the same as "recharacterization? Can the OP have his custodian recharacterize the Roth contribution as Trad IRA contribution (non-deductible)? That way the funds would continue to be in an IRA account, then the OP could convert those funds to Roth (i.e., backdoor Roth conversion). I'm not sure what happens with the earnings in that scenario, but I suspect someone on this forum can clarify that.
What I described there is not a re-characterization. It is a return or withdrawal of a contribution.

The re-characterization route is a different alternative.
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Wed Apr 28, 2021 11:04 am
orygunboxer wrote: Wed Apr 28, 2021 10:52 am
arcticpineapplecorp. wrote: Wed Apr 28, 2021 10:28 am can you first tell us what it was about 2020 that made it "likely quite advantageous for us to file our taxes Married Filing Separately (MFS)"?
Sure. It appears to be coming down to the discrepancy between the income of my partner and myself and how that is treated by the many stimulus packages we saw in 2020 and continuing into 2021. We also have one dependent. There are things we do not qualify for when we file jointly. But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
There are quite a number of things that people are not eligible for when filing separately. Roth IRA is just one of them. As I recall, several of the tax credits are not available. Be sure to do thorough research.

Another alternative that I did not think of earlier is to have the Roth IRA contribution re-characterized to a traditional IRA contribution. Then do a Roth conversion....and the money ends up in Roth IRA. This option is no good if there is other money in tIRA (including SEP IRA, SIMPLE IRA, and rollover IRA). This is known as the "backdoor" Roth and the paperwork can be tricky.
It's early, but right now the "recharacterization" option seems good. The Backdoor Roth route seems good too. Can you explain further what you mean by "This option is no good if there is other money in tIRA..."? Learning here. Thank you.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

orygunboxer wrote: Wed Apr 28, 2021 11:26 am It's early, but right now the "recharacterization" option seems good. The Backdoor Roth route seems good too. Can you explain further what you mean by "This option is no good if there is other money in tIRA..."? Learning here. Thank you.
If the person doing a Roth conversion (which is the second stop of Backdoor roth) has other IRAs, the other IRAs will be pro-rated with the Roth conversion. The backdoor Roth will not be tax free and there will be "basis" (already taxed money) left in the other IRA (at least on paper).

If you are not familiar with these concepts yet, this may not make any sense at this point. Just trust me that you do not want to use the backdoor Roth method if there are other IRAs in your name.

It might be possible to roll the other IRAs into a 401k or something though. This would avoid the pro-rating.

See the Wiki (link above) for information on the backdoor Roth. It's a bit overwhelming at first.
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Wed Apr 28, 2021 11:31 am
orygunboxer wrote: Wed Apr 28, 2021 11:26 am It's early, but right now the "recharacterization" option seems good. The Backdoor Roth route seems good too. Can you explain further what you mean by "This option is no good if there is other money in tIRA..."? Learning here. Thank you.
If the person doing a Roth conversion (which is the second stop of Backdoor roth) has other IRAs, the other IRAs will be pro-rated with the Roth conversion. The backdoor Roth will not be tax free and there will be "basis" (already taxed money) left in the other IRA (at least on paper).

If you are not familiar with these concepts yet, this may not make any sense at this point. Just trust me that you do not want to use the backdoor Roth method if there are other IRAs in your name.

It might be possible to roll the other IRAs into a 401k or something though. This would avoid the pro-rating.

See the Wiki (link above) for information on the backdoor Roth. It's a bit overwhelming at first.
Great start and I am following. Thank you. Going to the Wiki now. I do have another IRA in my name. Same story for my partner. Both being rollover IRAs from previous employers that we now hold at Vanguard.
retiredjg
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

orygunboxer wrote: Wed Apr 28, 2021 11:44 am
retiredjg wrote: Wed Apr 28, 2021 11:31 am
orygunboxer wrote: Wed Apr 28, 2021 11:26 am It's early, but right now the "recharacterization" option seems good. The Backdoor Roth route seems good too. Can you explain further what you mean by "This option is no good if there is other money in tIRA..."? Learning here. Thank you.
If the person doing a Roth conversion (which is the second stop of Backdoor roth) has other IRAs, the other IRAs will be pro-rated with the Roth conversion. The backdoor Roth will not be tax free and there will be "basis" (already taxed money) left in the other IRA (at least on paper).

If you are not familiar with these concepts yet, this may not make any sense at this point. Just trust me that you do not want to use the backdoor Roth method if there are other IRAs in your name.

It might be possible to roll the other IRAs into a 401k or something though. This would avoid the pro-rating.

See the Wiki (link above) for information on the backdoor Roth. It's a bit overwhelming at first.
Great start and I am following. Thank you. Going to the Wiki now. I do have another IRA in my name. Same story for my partner. Both being rollover IRAs from previous employers that we now hold at Vanguard.
Backdoor Roth is extremely popular around here. I gave up suggesting that people use it several years ago as it became obvious that many people are going to mess it up. That said, there is a lot of help available if you decide to go ahead with it.

If you decide not to go that route, the money can still be invested in a taxable account (ordinary brokerage account). Broad stock index funds are very tax-efficient and can be used in the taxable accounts without causing a lot of unnecessary tax.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by CoastLawyer2030 »

ipdiddly wrote: Wed Apr 28, 2021 11:17 am
CoastLawyer2030 wrote: Wed Apr 28, 2021 11:11 am
I think you are jumping the gun here.

I would consult a tax professional about this and not trust "dummy" tax returns. There are extremely few scenarios where MFS is better than MFJ. You might be one of those but the odds are against it.
I suspect there are many folks who found that they qualified for significant stimulus payments by filing MFS. My son and DIL file MFS every year in order to keep her income-based student loan payments at reasonable levels. This year, with a new baby, she got a substantial stimulus addition to her refund.

If you file MFS, you technically can't make a Roth contribution. However, every year they make a backdoor Roth. Frankly, it's a big pain in the butt filing MFS - i do their tax returns. But, unfortunately it is necessary.
I looked into the student loan repayment issue years ago. MFS did not work for me. All MFS did was make me pay more in taxes to have lower student loan payments and not be able to claim any deductions or contribute to several different types of accounts.

Situations can certainly be different (e.g., if the non-student loan spouse is a high earner), but it was generally moving money around to create a net equal.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by TropikThunder »

orygunboxer wrote: Wed Apr 28, 2021 10:52 am But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
I’m having trouble seeing where MFS would come out ahead. Let’s say your MFJ AGI is above the phase-out of $160,000. But one of you is below the MFS phaseout of $80,000 while the other one is above. With a dependent assigned to the one below the phase-out, that means the lower-earning spouse now qualifies for $2,800 in stimulus.

But surely the higher tax brackets for MFS would cost you more than the stimulus, wouldn’t they? For example, the 12% bracket for MFJ goes up to $81,000 while it only goes up to $40,000 for MFS. That means a MFS filer with $81,000 in taxable income has $41,000 of that income in the 22% bracket instead of the 12% bracket, costing an additional $4,100 in taxes. Are you really in such a sweet spot that the increased tax burden of MFS is less than the $2,800 stimulus “by a large margin”?
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gobel
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Re: Married Filing Separately & A Roth IRA Mistake

Post by gobel »

TropikThunder wrote: Wed Apr 28, 2021 1:59 pm But surely the higher tax brackets for MFS would cost you more than the stimulus, wouldn’t they? For example, the 12% bracket for MFJ goes up to $81,000 while it only goes up to $40,000 for MFS. That means a MFS filer with $81,000 in taxable income has $41,000 of that income in the 22% bracket instead of the 12% bracket, costing an additional $4,100 in taxes. Are you really in such a sweet spot that the increased tax burden of MFS is less than the $2,800 stimulus “by a large margin”?
If the other spouse's income would have filled the 10/12% bracket as MFJ anyway, then there's much less difference. MFJ brackets are just double of MFS brackets.

eg if the split is 70k/130k minus the standard deduction, then ~4k income will cross into the 24% bracket as MFJ vs about 32k for MFS, for a net loss of $560. But the lower earning spouse would gain stimulus 1+2+3 for self plus kid (so up to $5700).
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

TropikThunder wrote: Wed Apr 28, 2021 1:59 pm
orygunboxer wrote: Wed Apr 28, 2021 10:52 am But when we switch to filing MFS, one of us does qualify and is able to take advantage. When we do "dummy" tax returns in a MFJ scenario versus a MFS scenario, we come out on top in the MFS scenario by a large margin. So right now it makes sense to file MFS, but we are looking for a fix for the Roth IRA scenario before we commit.
I’m having trouble seeing where MFS would come out ahead. Let’s say your MFJ AGI is above the phase-out of $160,000. But one of you is below the MFS phaseout of $80,000 while the other one is above. With a dependent assigned to the one below the phase-out, that means the lower-earning spouse now qualifies for $2,800 in stimulus.

But surely the higher tax brackets for MFS would cost you more than the stimulus, wouldn’t they? For example, the 12% bracket for MFJ goes up to $81,000 while it only goes up to $40,000 for MFS. That means a MFS filer with $81,000 in taxable income has $41,000 of that income in the 22% bracket instead of the 12% bracket, costing an additional $4,100 in taxes. Are you really in such a sweet spot that the increased tax burden of MFS is less than the $2,800 stimulus “by a large margin”?
I will try my best to explain our situation. At first I was timid to provide details, but I now understand there is some anonymity here and providing context is the best way to get accurate answers while also helping this community at large. My partner is a CPA. She handles the taxes. I do most of the investment research (thus my membership on this site).

The MFS designation allows one of us (the one with the lower income) to qualify for: a $500 dependent stimulus that was not received (in error) in 2020, a $600 dependent stimulus (same situation). It also qualifies one of us to exclude taxes from unemployment income that was earned during the 2020 year.

By our calculations, we come out on top by about $2000 when compared with MFJ. I hope this helps provide context.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by newacct »

orygunboxer wrote: Wed Apr 28, 2021 11:44 am I do have another IRA in my name. Same story for my partner. Both being rollover IRAs from previous employers that we now hold at Vanguard.
See if your current 401(k) plans allow rolling over pre-tax money from Traditional IRA to 401(k). That is a way to prevent it from interfering with backdoor Roth IRA contributions.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

newacct wrote: Wed Apr 28, 2021 5:29 pm
orygunboxer wrote: Wed Apr 28, 2021 11:44 am I do have another IRA in my name. Same story for my partner. Both being rollover IRAs from previous employers that we now hold at Vanguard.
See if your current 401(k) plans allow rolling over pre-tax money from Traditional IRA to 401(k). That is a way to prevent it from interfering with backdoor Roth IRA contributions.
Can you explain this further please?
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

Update...

After some great ideas from people on here and some wiki research, here are the options that best fit our situation:

1. Recharacterize the 2020 Roth IRA contribution of $6,000 to my Traditional IRA. Both of these account types are held at Vanguard. My phone call to them went well. They told me to call during regular market hours. They would run a calculation on the contribution and any accompanying gains. All that would then be moved into my traditional IRA. I could then file a certain form with the IRS that would note my traditional IRA contains some pre-tax funds and some post-tax funds (the one's from this recharacterization). I know you cannot fully trust Vanguard call centers for tax advice, but I was told this would prevent those funds from being taxed a second time upon withdrawal at a later date. It is my understanding that this move would not see us incur ANY fees or penalties. Sound correct? Please say something if you see an error here.

2. Utilizing a backdoor to get the funds back into a Roth does NOT appear to be an option for us since we both own traditional IRA's (rollover accounts from previous employers) and those IRAs have some money in them.

This is where we stand right now. We have made a lot of progress on this in a short amount of time due to the power of this community. Thank you all and we hope to keep it going.
Last edited by orygunboxer on Wed Apr 28, 2021 7:15 pm, edited 1 time in total.
retiredjg
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

orygunboxer wrote: Wed Apr 28, 2021 6:16 pm 2. Utilizing a backdoor to get the funds back into a Roth does appear to be an option for us since we both own traditional IRA's (rollover accounts from previous employers) and those IRAs have some money in them.
Maybe this is a typo or maybe you have misunderstood.

You should not use the backdoor unless you can roll these IRAs into a 401k or similar plan before the end of the year.

Suggest you not re-characterize your contribution until this is straightened out.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by neurosphere »

orygunboxer wrote: Wed Apr 28, 2021 6:16 pm
1. Recharacterize the 2020 Roth IRA contribution of $6,000 to my Traditional IRA.
Perhaps not, no, do not recharacterize into the existing IRA.

You said you have an IRA which represents a rollover from a previous employer. Is this IRA titled a rollover IRA in the name? Someone will hopefully provide more details, but you may consider doing the recharacterization to a NEW IRA, such that you have one IRA with only after-tax (i.e. non-deductible) money, and the other still contains only pre-tax rollover money. Then, if you have a current employer plan which allows incoming rollovers of IRA, you could get rid of the rollover IRA (it's not in the 401k). This would leave only the new IRA which contains non-deductible funds. At that point, you would convert the IRA into a Roth IRA. This would not be a taxable event in this case.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by spdoublebass »

CoastLawyer2030 wrote: Wed Apr 28, 2021 12:23 pm
ipdiddly wrote: Wed Apr 28, 2021 11:17 am
CoastLawyer2030 wrote: Wed Apr 28, 2021 11:11 am
I think you are jumping the gun here.

I would consult a tax professional about this and not trust "dummy" tax returns. There are extremely few scenarios where MFS is better than MFJ. You might be one of those but the odds are against it.
I suspect there are many folks who found that they qualified for significant stimulus payments by filing MFS. My son and DIL file MFS every year in order to keep her income-based student loan payments at reasonable levels. This year, with a new baby, she got a substantial stimulus addition to her refund.

If you file MFS, you technically can't make a Roth contribution. However, every year they make a backdoor Roth. Frankly, it's a big pain in the butt filing MFS - i do their tax returns. But, unfortunately it is necessary.
I looked into the student loan repayment issue years ago. MFS did not work for me. All MFS did was make me pay more in taxes to have lower student loan payments and not be able to claim any deductions or contribute to several different types of accounts.

Situations can certainly be different (e.g., if the non-student loan spouse is a high earner), but it was generally moving money around to create a net equal.
Each situation is different of course and needs to be looked at separately.

One reason to file separate is for the “injured spouse” rule which can be more easily proven with a history of filing separately but NOT required.
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gobel
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Re: Married Filing Separately & A Roth IRA Mistake

Post by gobel »

orygunboxer wrote: Wed Apr 28, 2021 3:33 pm By our calculations, we come out on top by about $2000 when compared with MFJ. I hope this helps provide context.
With only 2k gained, you have to make sure to look at the complete picture to see if there is anything else offsetting this gain. E.g. is there any hit to your state income taxes? And how much tax have you avoided on the Roth earnings vs TIRA? (When did you make your 2020 Roth contributions and what % has the account gained since then? If you recharacterize 12k and say it went up 33%, that's another 4k earnings. Tax on 4k will be about 1k which should be counted against the 2k you think you are making)
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

neurosphere wrote: Wed Apr 28, 2021 6:25 pm
orygunboxer wrote: Wed Apr 28, 2021 6:16 pm
1. Recharacterize the 2020 Roth IRA contribution of $6,000 to my Traditional IRA.
Perhaps not, no, do not recharacterize into the existing IRA.

You said you have an IRA which represents a rollover from a previous employer. Is this IRA titled a rollover IRA in the name? Someone will hopefully provide more details, but you may consider doing the recharacterization to a NEW IRA, such that you have one IRA with only after-tax (i.e. non-deductible) money, and the other still contains only pre-tax rollover money. Then, if you have a current employer plan which allows incoming rollovers of IRA, you could get rid of the rollover IRA (it's not in the 401k). This would leave only the new IRA which contains non-deductible funds. At that point, you would convert the IRA into a Roth IRA. This would not be a taxable event in this case.
I am happy I made that post. Let's dig in. Yes, the Traditional IRA I have is a "rollover." It is titled as such. It is from a previous employer and it was rolled over to be with Vanguard. I am understanding what you are saying about starting a NEW Traditional IRA to keep the pre-tax and post-tax funds separate. I do not know if my employer offer's a plan for incoming rollover's of an IRA. I work for a state university. I would need to look into that. The learning continues. Thank you.
Last edited by orygunboxer on Wed Apr 28, 2021 7:35 pm, edited 1 time in total.
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Wed Apr 28, 2021 6:23 pm
orygunboxer wrote: Wed Apr 28, 2021 6:16 pm 2. Utilizing a backdoor to get the funds back into a Roth does appear to be an option for us since we both own traditional IRA's (rollover accounts from previous employers) and those IRAs have some money in them.
Maybe this is a typo or maybe you have misunderstood.

You should not use the backdoor unless you can roll these IRAs into a 401k or similar plan before the end of the year.

Suggest you not re-characterize your contribution until this is straightened out.
Can you expand on this further please? I was not planning to do a backdoor as my basic understanding was that I could not due to already possessing a Traditional IRA (rollover-type) and it having funds currently in it. This may be changing due to learning about the option to create a separate Traditional IRA to keep the pre-tax and post-tax funds separated.

Can you expand on why you think I should not recharacterize? To me it seems like my best option to avoid penalties and taxes. I am all ears.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Wed Apr 28, 2021 6:23 pm
orygunboxer wrote: Wed Apr 28, 2021 6:16 pm 2. Utilizing a backdoor to get the funds back into a Roth does appear to be an option for us since we both own traditional IRA's (rollover accounts from previous employers) and those IRAs have some money in them.
Maybe this is a typo or maybe you have misunderstood.

You should not use the backdoor unless you can roll these IRAs into a 401k or similar plan before the end of the year.

Suggest you not re-characterize your contribution until this is straightened out.
You are right! That was a typo. I have edited the post to say the backdoor is NOT an option for us.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by neurosphere »

orygunboxer wrote: Wed Apr 28, 2021 7:16 pm
retiredjg wrote: Wed Apr 28, 2021 6:23 pm
orygunboxer wrote: Wed Apr 28, 2021 6:16 pm 2. Utilizing a backdoor to get the funds back into a Roth does appear to be an option for us since we both own traditional IRA's (rollover accounts from previous employers) and those IRAs have some money in them.
Maybe this is a typo or maybe you have misunderstood.

You should not use the backdoor unless you can roll these IRAs into a 401k or similar plan before the end of the year.

Suggest you not re-characterize your contribution until this is straightened out.
You are right! That was a typo. I have edited the post to say the backdoor is NOT an option for us.
But if you can roll in the existing IRA to your employer, backdoor roth is unlocked! The existing IRA is the block. Make it disappear, and voila backdoor roth possibility. :) Just to emphasize what retiredjg wrote.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

gobel wrote: Wed Apr 28, 2021 6:42 pm
orygunboxer wrote: Wed Apr 28, 2021 3:33 pm By our calculations, we come out on top by about $2000 when compared with MFJ. I hope this helps provide context.
With only 2k gained, you have to make sure to look at the complete picture to see if there is anything else offsetting this gain. E.g. is there any hit to your state income taxes? And how much tax have you avoided on the Roth earnings vs TIRA? (When did you make your 2020 Roth contributions and what % has the account gained since then? If you recharacterize 12k and say it went up 33%, that's another 4k earnings. Tax on 4k will be about 1k which should be counted against the 2k you think you are making)
This is a great point here. We are trying our best to look at every angle before we make any final decisions/moves. Our plan is to simply do the best option we have available to us. It does not seem like we will have any perfect options, but we just want the best option for our situation.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by grabiner »

You can recharacterize the Roth IRA contributions as traditional IRA contributions, which you are allowed to make as MFS but cannot deduct.

If you don't have traditional IRAs already, you can then convert the traditional IRAs to Roth IRAs for a relatively small tax bill; you would only owe tax on the growth since you contributed. This is essentially a backdoor Roth IRA. (If you do have traditional IRAs, the pro rata rule means that you can't convert just the 2020 contribution.)
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

grabiner wrote: Wed Apr 28, 2021 7:55 pm You can recharacterize the Roth IRA contributions as traditional IRA contributions, which you are allowed to make as MFS but cannot deduct.

If you don't have traditional IRAs already, you can then convert the traditional IRAs to Roth IRAs for a relatively small tax bill; you would only owe tax on the growth since you contributed. This is essentially a backdoor Roth IRA. (If you do have traditional IRAs, the pro rata rule means that you can't convert just the 2020 contribution.)
Thank you for taking the time. From your understanding... if I already have a Traditional IRA (which is a rollover) and it has funds in it, am I able to make an entirely new Traditional IRA to do this recharacterizing? Would this process allow me to avoid the pro rata rule?

Learning here. Thanks for your patience.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by grabiner »

orygunboxer wrote: Wed Apr 28, 2021 8:52 pm
grabiner wrote: Wed Apr 28, 2021 7:55 pm You can recharacterize the Roth IRA contributions as traditional IRA contributions, which you are allowed to make as MFS but cannot deduct.

If you don't have traditional IRAs already, you can then convert the traditional IRAs to Roth IRAs for a relatively small tax bill; you would only owe tax on the growth since you contributed. This is essentially a backdoor Roth IRA. (If you do have traditional IRAs, the pro rata rule means that you can't convert just the 2020 contribution.)
Thank you for taking the time. From your understanding... if I already have a Traditional IRA (which is a rollover) and it has funds in it, am I able to make an entirely new Traditional IRA to do this recharacterizing? Would this process allow me to avoid the pro rata rule?
You can make a new Traditional IRA, but if you convert, the taxable amount is prorated across all your IRAs, even if they are at different providers. If you have a $45K Fidelity IRA with zero basis, and a $5K Vanguard IRA with $5K basis, and you convert the Vanguard IRA, you will owe tax on $4500 since you converted 1/10 of your $50K IRA balance.

The way to get around this is to roll the old Traditional IRA into an employer plan if it accepts rollovers. If you don't do this, then you need to either keep the non-deductible IRA, unless it makes sense to convert the whole IRA to Roth (possibly over several years to avoid moving into a higher tax bracket).
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

Maybe this has not been stated clearly enough...if you are not going to use the "backdoor" by doing a Roth conversion on the newly created non-deductible IRAs, there is no point in having the non-deductible IRAs. They will just be a nuisance that goes on for years.

I see your choices like this.

1. File MFJ. Leave everything like it is. If you make this choice, you get to keep the Roth IRAs as they are which means the earnings that have occurred over the last 14 or so months get to stay in Roth IRA tax free. This has been a time of fast growth so the earnings could be a nice amount. But you give up the stimulus money.


2. File MFS. Re-characterize 2 Roth IRA contributions (and their associated earnings) to 2 non-deductible contributions to traditional IRA. Move each rollover IRA into a 401k or similar plan (does partner have such a plan available?). Convert the 2 non-deductible contributions to Roth IRA paying tax on the earnings part. An additional potential downside to this plan is that you may have rolled the IRAs into work plans that have higher costs than the IRAs at Vanguard.


3. File MFS. Leave everything as it is until after October 15. Then withdraw each of the excess contributions, leaving the earnings in the Roth IRAs. Pay a 6% excise tax with your 2021taxes on the 2 excess contributions that were not withdrawn before the deadline. In this case, you will not have a contribution for Roth IRA at all for the year 2020 but the earnings get to stay in the Roth IRA. And you get the stimulus money.


I think if you look at these options, you may find that none has a definite advantage over the others. In that case, I'd suggest the simple one (#1).
Last edited by retiredjg on Thu Apr 29, 2021 7:15 am, edited 1 time in total.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by cas »

retiredjg wrote: Thu Apr 29, 2021 6:38 am 3. File MFJ. Leave everything as it is until after October 15. Then withdraw each of the excess contributions, leaving the earnings in the Roth IRAs. Pay a 6% excise tax with your 2021taxes on the 2 excess contributions that were not withdrawn before the deadline. In this case, you will not have a contribution for Roth IRA at all for the year 2020 but the earnings get to stay in the Roth IRA. And you give up the stimulus money.
I'm not sure I understand Option 3.

If they file MFJ, then that is Option 1, they qualify for direct Roth contribution, and they do nothing further?

Or did you mean "file MFS" and "get" the stimulus money rather than "give up" the stimulus money?

It is also entirely possible that I am just confused.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

Nope, you are right. I'll fix it. :oops:
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Re: Married Filing Separately & A Roth IRA Mistake

Post by CoastLawyer2030 »

retiredjg wrote: Thu Apr 29, 2021 6:38 am Maybe this has not been stated clearly enough...if you are not going to use the "backdoor" by doing a Roth conversion on the newly created non-deductible IRAs, there is no point in having the non-deductible IRAs. They will just be a nuisance that goes on for years.

I see your choices like this.

1. File MFJ. Leave everything like it is. If you make this choice, you get to keep the Roth IRAs as they are which means the earnings that have occurred over the last 14 or so months get to stay in Roth IRA tax free. This has been a time of fast growth so the earnings could be a nice amount. But you give up the stimulus money.


2. File MFS. Re-characterize 2 Roth IRA contributions (and their associated earnings) to 2 non-deductible contributions to traditional IRA. Move each rollover IRA into a 401k or similar plan (does partner have such a plan available?). Convert the 2 non-deductible contributions to Roth IRA paying tax on the earnings part. An additional potential downside to this plan is that you may have rolled the IRAs into work plans that have higher costs than the IRAs at Vanguard.


3. File MFS. Leave everything as it is until after October 15. Then withdraw each of the excess contributions, leaving the earnings in the Roth IRAs. Pay a 6% excise tax with your 2021taxes on the 2 excess contributions that were not withdrawn before the deadline. In this case, you will not have a contribution for Roth IRA at all for the year 2020 but the earnings get to stay in the Roth IRA. And you get the stimulus money.


I think if you look at these options, you may find that none has a definite advantage over the others. In that case, I'd suggest the simple one (#1).
This is kind of what I was getting at with my earlier posts questioning the entire premise of "needing" to file MFS, and why I also agree with Option #1. Doing all these financial cartwheels to get a couple stimulus checks likely isn't worth it when you net everything out.

MFS means you miss out on most deductions and credits. Seems like the stimulus childcare tax credit is an exception, but is there no other way? Can you not get AGI below $150,000? And if you can't get AGI below $150,000, is going through all this hassle -- which probably has little net value when considering all the angles -- worth it?
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Re: Married Filing Separately & A Roth IRA Mistake

Post by HomeStretch »

Assuming you decide to file as MFS for 2020…

Read the summary plan descriptions for your and spouse’s employer plans to see if the plans will accept rollovers in from a traditional IRA (TIRA). If yes, contact the plan custodians to ask how to do it and whether:
(1) any pretax TIRA balance can be rolled in, or
(2) if only a Rollover IRA can be rolled in.
#2 is more restrictive and would only allow you to rollover in a Rollover IRA which was funded by a rollover from a prior employer plan. The IRA cannot include, for example, pretax earnings on non-deductible TIRA contributions.

If your employer plan will accept #1, above, you can:
(A) recharacterize the 2020 Roth IRA contribution and earnings into your existing TIRA by 5/17/21. You don’t need a new separate TIRA.
(B) during 2021, rollover the pretax TIRA balance (including the earnings on the recharacterized contribution) to the employer plan. This should leave $6,000 in the TIRA (your 2020 non-deductible contribution).
(C) as soon as (B) is complete and no later than 12/31/21, convert the remaining TIRA balance to your Roth IRA. You will pay (minimal) tax on any pretax earnings.

If your employer plan will only accept #2, above, you can:
(A) recharacterize the 2020 Roth IRA contribution and earnings into a new TIRA by 5/17/21. If you recharacterize into your existing TIRA, your employer plan will not accept a rollover.
(B) during 2021, rollover the existing TIRA balance to the employer plan.
(C) as soon as (B) is complete and no later than 12/31/21, convert the entire second TIRA balance to your Roth IRA. You will pay taxes on the earnings. It is likely worthwhile to do so as you will be able to do future annual backdoor Roth without being subject to pro-rated taxes.

Your Federal tax return will need to include a Form 8606 starting with tax year 2020 for the recharacterized non-deductible TIRA contribution. The BH wiki page ‘Backdoor Roth’ includes information on Form 8606:
https://www.bogleheads.org/wiki/Backdoor_Roth
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orygunboxer
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Thu Apr 29, 2021 6:38 am Maybe this has not been stated clearly enough...if you are not going to use the "backdoor" by doing a Roth conversion on the newly created non-deductible IRAs, there is no point in having the non-deductible IRAs. They will just be a nuisance that goes on for years.

I see your choices like this.

1. File MFJ. Leave everything like it is. If you make this choice, you get to keep the Roth IRAs as they are which means the earnings that have occurred over the last 14 or so months get to stay in Roth IRA tax free. This has been a time of fast growth so the earnings could be a nice amount. But you give up the stimulus money.


2. File MFS. Re-characterize 2 Roth IRA contributions (and their associated earnings) to 2 non-deductible contributions to traditional IRA. Move each rollover IRA into a 401k or similar plan (does partner have such a plan available?). Convert the 2 non-deductible contributions to Roth IRA paying tax on the earnings part. An additional potential downside to this plan is that you may have rolled the IRAs into work plans that have higher costs than the IRAs at Vanguard.


3. File MFS. Leave everything as it is until after October 15. Then withdraw each of the excess contributions, leaving the earnings in the Roth IRAs. Pay a 6% excise tax with your 2021taxes on the 2 excess contributions that were not withdrawn before the deadline. In this case, you will not have a contribution for Roth IRA at all for the year 2020 but the earnings get to stay in the Roth IRA. And you get the stimulus money.


I think if you look at these options, you may find that none has a definite advantage over the others. In that case, I'd suggest the simple one (#1).
Thank you for the summary. Very helpful.

We know we have Option 1 in our pocket if we choose that route.

For Option 2 the only "loss" is paying taxes on the earnings part, correct? Any other penalties or taxes you can think of in this scenario?
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

CoastLawyer2030 wrote: Thu Apr 29, 2021 7:35 am
retiredjg wrote: Thu Apr 29, 2021 6:38 am Maybe this has not been stated clearly enough...if you are not going to use the "backdoor" by doing a Roth conversion on the newly created non-deductible IRAs, there is no point in having the non-deductible IRAs. They will just be a nuisance that goes on for years.

I see your choices like this.

1. File MFJ. Leave everything like it is. If you make this choice, you get to keep the Roth IRAs as they are which means the earnings that have occurred over the last 14 or so months get to stay in Roth IRA tax free. This has been a time of fast growth so the earnings could be a nice amount. But you give up the stimulus money.


2. File MFS. Re-characterize 2 Roth IRA contributions (and their associated earnings) to 2 non-deductible contributions to traditional IRA. Move each rollover IRA into a 401k or similar plan (does partner have such a plan available?). Convert the 2 non-deductible contributions to Roth IRA paying tax on the earnings part. An additional potential downside to this plan is that you may have rolled the IRAs into work plans that have higher costs than the IRAs at Vanguard.


3. File MFS. Leave everything as it is until after October 15. Then withdraw each of the excess contributions, leaving the earnings in the Roth IRAs. Pay a 6% excise tax with your 2021taxes on the 2 excess contributions that were not withdrawn before the deadline. In this case, you will not have a contribution for Roth IRA at all for the year 2020 but the earnings get to stay in the Roth IRA. And you get the stimulus money.


I think if you look at these options, you may find that none has a definite advantage over the others. In that case, I'd suggest the simple one (#1).
This is kind of what I was getting at with my earlier posts questioning the entire premise of "needing" to file MFS, and why I also agree with Option #1. Doing all these financial cartwheels to get a couple stimulus checks likely isn't worth it when you net everything out.

MFS means you miss out on most deductions and credits. Seems like the stimulus childcare tax credit is an exception, but is there no other way? Can you not get AGI below $150,000? And if you can't get AGI below $150,000, is going through all this hassle -- which probably has little net value when considering all the angles -- worth it?
Still open to Option 1. Just looking for the BEST option for us. One thing I did a bad job of explaining is beyond the net $1,100 gain from the stimulus payments. One of us has about $10,000 in unemployment income from the year. If we file MFS, we qualify for that amount to go untaxed. If we go MFJ, we are above the income threshold and would pay tax on the $10,000 in unemployment income. Including our state taxes, that saves us approx. $2,000 in taxes. I hope this makes sense. So I look at us as being closer to $3,000 better off in a MFS v. MFJ scenario.

Our AGI is around $200,000, so I do not see a reasonable way to get our AGI below $150,000. Open to suggestions though.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

HomeStretch wrote: Thu Apr 29, 2021 7:56 am Assuming you decide to file as MFS for 2020…

Read the summary plan descriptions for your and spouse’s employer plans to see if the plans will accept rollovers in from a traditional IRA (TIRA). If yes, contact the plan custodians to ask how to do it and whether:
(1) any pretax TIRA balance can be rolled in, or
(2) if only a Rollover IRA can be rolled in.
#2 is more restrictive and would only allow you to rollover in a Rollover IRA which was funded by a rollover from a prior employer plan. The IRA cannot include, for example, pretax earnings on non-deductible TIRA contributions.

If your employer plan will accept #1, above, you can:
(A) recharacterize the 2020 Roth IRA contribution and earnings into your existing TIRA by 5/17/21. You don’t need a new separate TIRA.
(B) during 2021, rollover the pretax TIRA balance (including the earnings on the recharacterized contribution) to the employer plan. This should leave $6,000 in the TIRA (your 2020 non-deductible contribution).
(C) as soon as (B) is complete and no later than 12/31/21, convert the remaining TIRA balance to your Roth IRA. You will pay (minimal) tax on any pretax earnings.

If your employer plan will only accept #2, above, you can:
(A) recharacterize the 2020 Roth IRA contribution and earnings into a new TIRA by 5/17/21. If you recharacterize into your existing TIRA, your employer plan will not accept a rollover.
(B) during 2021, rollover the existing TIRA balance to the employer plan.
(C) as soon as (B) is complete and no later than 12/31/21, convert the entire second TIRA balance to your Roth IRA. You will pay taxes on the earnings. It is likely worthwhile to do so as you will be able to do future annual backdoor Roth without being subject to pro-rated taxes.

Your Federal tax return will need to include a Form 8606 starting with tax year 2020 for the recharacterized non-deductible TIRA contribution. The BH wiki page ‘Backdoor Roth’ includes information on Form 8606:
https://www.bogleheads.org/wiki/Backdoor_Roth
This is a great summary. Thank you. I am going to reach out to my employer today (partner too), to see our options. Hoping for the best options here.

Either way it seems like "emptying" the Traditional IRA's we both currently have would be beneficial in the future for Backdoor Roth availability. I am new to this game and I have FOMO over not being aware of it. But that's why I am here, to learn. Thank you all.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by neurosphere »

HomeStretch wrote: Thu Apr 29, 2021 7:56 am If your employer plan will only accept #2, above, you can:
(A) recharacterize the 2020 Roth IRA contribution and earnings into a new TIRA by 5/17/21. If you recharacterize into your existing TIRA, your employer plan will not accept a rollover.
(B) during 2021, rollover the existing TIRA balance to the employer plan.
(C) as soon as (B) is complete and no later than 12/31/21, convert the entire second TIRA balance to your Roth IRA. You will pay taxes on the earnings. It is likely worthwhile to do so as you will be able to do future annual backdoor Roth without being subject to pro-rated taxes.
I also advise completing the rollover prior to doing the conversion.

However, the conversion can happen at any time (i.e. prior to the rollover) as long as the rollover is indeed complete before the end of the year. I usually advise to wait for the rollover anyway though, just to make sure there is not some unanticipated snag/delay which prevents the rollover from occurring.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by retiredjg »

You have mentioned several times that you have a 401k that you might be able to roll the rollover IRA into. What about partner?
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

retiredjg wrote: Thu Apr 29, 2021 11:28 am You have mentioned several times that you have a 401k that you might be able to roll the rollover IRA into. What about partner?
I work for a public university. What I have available to me is a 403b and/or 457 plan. My research says both of these plans allow for a IRA rollover. I still need to confirm a yes for my specific situation. I also need to confirm fees. As well as seeing which funds they have available for investment. I am a low cost fund disciple so I'm keeping that in mind.

My partner, we are still searching for that answer. Stay tuned. Will report back.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by Katietsu »

With an income of $200k, I would look further into rolling your traditional IRA’s into your workplace plans. I honestly was against this when I thought this was a one time thing. But it seems that you may run into the income limits for Roth contributions again in the future.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

Update to the situation. I have confirmed there are two options available through my employer:

1. 403b through Fidelity
- I am able to open it immediately
- The rollover from my Traditional IRA w/ Vanguard would be fee free
- There are low cost funds available such as FXIAX
- They do have an annual account fee of $75

2. 457 through Voya
- I am able to open it immediately
- The rollover from my Traditional IRA w/ Vanguard would be fee free
- There are low cost funds available such as the Blackrock Russell 1000
- No pre-set account fee, but a 0.12% annual fee based on the account balance

In this case the rollover would be for the amount of around $13,000. Which option would you all pick here?

Still working on options for my partner, but getting closer to being able to execute a Backdoor for both of us. Cannot thank you all enough for your help!
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Re: Married Filing Separately & A Roth IRA Mistake

Post by HomeStretch »

Assuming the plans receive the same employer matching contribution (if any), I personally would choose the 403b plan (especially if the 457 plan is offered by a non-governmental employer).
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Re: Married Filing Separately & A Roth IRA Mistake

Post by orygunboxer »

HomeStretch wrote: Thu Apr 29, 2021 6:52 pm Assuming the plans receive the same employer matching contribution (if any), I personally would choose the 403b plan (especially if the 457 plan is offered by a non-governmental employer).
These are self-contribution plans, both of them, so no employer match in play. The 457 is offered through Voya via the OSGP (Oregon Savings Growth Plan). My employer is a state university within Oregon.
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Re: Married Filing Separately & A Roth IRA Mistake

Post by Katietsu »

Do you plan to contribute to either one of these accounts in the future? If not, I would just go with the cheapest. This appears to be Voya.

The 457 has an advantage of penalty free withdrawals after leaving the employer regardless of age. On other words, the funds can be withdrawn before 59.5 years of age without penalty.

On the other hand, the 403b and Fidelity are a rock solid option. The annual fee will become a smaller and smaller percentage if you begin to contribute.

At your household income level, you likely should be using some of these retirement savings options.
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