Add to Non-Deductible IRA, Then Convert to Roth

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WhyAmeriprise
Posts: 31
Joined: Fri Jan 05, 2018 2:52 pm

Add to Non-Deductible IRA, Then Convert to Roth

Post by WhyAmeriprise » Mon Feb 12, 2018 10:01 pm

I believe I have my ducks in a row, but wanted to get feedback on the plan.

I have a small $4.5k IRA that wasn't deducted years ago. Amerprise recorded it as Qualified. $4k was the original contribution many years ago. Performance was not its strong suit.

#1 thing I thought was that for simplicity I would convert the funds into the Roth IRA. The Roth IRA used to hold a RAVA, but it's been cashed out and ready to move out. Converting the $4.5K IRA would bring the Roth IRA to a total $95k.

I have a 401k at work, and was ready to make the $5500 non-deductible contribution into the account for 2017, and perhaps another $5500 non-deductible contribution into the account for 2018, prior to converting the IRA to the Roth. My understanding is that there would be no tax on the cash conversion.

Then the whole $106k (95 + 5.5 + 5.5) would be brought over to a new Roth IRA at ME, to invest in the boglehead three-fund portfolio. This would make it possible to qualify for the $100k Preferred Rewards level, after three months would get completely free trades.

Did I miss anything here?

livesoft
Posts: 59275
Joined: Thu Mar 01, 2007 8:00 pm

Re: Add to Non-Deductible IRA, Then Convert to Roth

Post by livesoft » Mon Feb 12, 2018 10:04 pm

Tell us about your Form 8606 that you have filled out in the past and the new one you are going to fill out.

I'm not sure why you are writing about a $5500 contribution to a 401(k) at work. Maybe it is just the way you wrote things which confuses me.
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MotoTrojan
Posts: 1087
Joined: Wed Feb 01, 2017 8:39 pm

Re: Add to Non-Deductible IRA, Then Convert to Roth

Post by MotoTrojan » Mon Feb 12, 2018 10:05 pm

WhyAmeriprise wrote:
Mon Feb 12, 2018 10:01 pm
I believe I have my ducks in a row, but wanted to get feedback on the plan.

I have a small $4.5k IRA that wasn't deducted years ago. Amerprise recorded it as Qualified. $4k was the original contribution many years ago. Performance was not its strong suit.

#1 thing I thought was that for simplicity I would convert the funds into the Roth IRA. The Roth IRA used to hold a RAVA, but it's been cashed out and ready to move out. Converting the $4.5K IRA would bring the Roth IRA to a total $95k.

I have a 401k at work, and was ready to make the $5500 non-deductible contribution into the account for 2017, and perhaps another $5500 non-deductible contribution into the account for 2018, prior to converting the IRA to the Roth. My understanding is that there would be no tax on the cash conversion.

Then the whole $106k (95 + 5.5 + 5.5) would be brought over to a new Roth IRA at ME, to invest in the boglehead three-fund portfolio. This would make it possible to qualify for the $100k Preferred Rewards level, after three months would get completely free trades.

Did I miss anything here?
Seems about right. I believe the taxes on the "cash conversion" are based on the pro-rated return of your global Roth, so if the Roth grows in the day(s) it takes to convert, you may see some taxes.

WhyAmeriprise
Posts: 31
Joined: Fri Jan 05, 2018 2:52 pm

Re: Add to Non-Deductible IRA, Then Convert to Roth

Post by WhyAmeriprise » Mon Feb 12, 2018 10:25 pm

livesoft wrote:
Mon Feb 12, 2018 10:04 pm
Tell us about your Form 8606 that you have filled out in the past and the new one you are going to fill out.

I'm not sure why you are writing about a $5500 contribution to a 401(k) at work.
My bad there. The 401k at work is just purring along, contributing enough to get their match.

I have to dig out the old 8606, from 2008. I made too much money for many years for an IRA, and then when I took a full time job, had a 401k that I used up to the match. AEIS says the cost basis for IXG was $3866.67. I have a bit of fun with paper statements to figure out the $800-ish difference by next year. (the Ameriprise FA and I have parted ways)

I realize 2017 and 2018 IRA contributions can't be deducted (because I have a 401k), but my understanding is that I can contribute these post-tax funds in like I did in the past, even though I can't deduct it, and convert the funds to the Roth before there's any appreciation.

I have clean-up to do on the various 401ks and a Simple IRA that have been on auto-pilot for a few years, but after seeing poor performance at Ameriprise, and having to pay him an annual fee to get anything done, brought the Ameriprise IRA and Roth IRA to the front burner.

WhyAmeriprise
Posts: 31
Joined: Fri Jan 05, 2018 2:52 pm

Re: Add to Non-Deductible IRA, Then Convert to Roth

Post by WhyAmeriprise » Mon Feb 12, 2018 10:32 pm

MotoTrojan wrote:
Mon Feb 12, 2018 10:05 pm
Seems about right. I believe the taxes on the "cash conversion" are based on the pro-rated return of your global Roth, so if the Roth grows in the day(s) it takes to convert, you may see some taxes.
Everything is in cash now. The $90k was a RAVA with proprietary subaccounts and I took "advantage" of the downturn to dump the turkey, paid the surrender, but missed some of the losses on the way out.

I cashed out the IXG because it clearly wasn't worth keeping long term, and paying them a $26 commission to make the transfer easier for them was worth it, IMHO.

I guess I will have to pay taxes based on .08 APYE.

HeadSpinning
Posts: 109
Joined: Sun Mar 29, 2015 8:27 pm

Re: Add to Non-Deductible IRA, Then Convert to Roth

Post by HeadSpinning » Tue Feb 13, 2018 3:09 pm

I believe you missed the fact that you have a Simple IRA, so there will be taxes involved in your conversion due to the pro-rata rule?

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