still contribute to IRA even if it is not pretax?

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Topic Author
fcf18
Posts: 24
Joined: Wed Jun 13, 2018 9:35 pm

still contribute to IRA even if it is not pretax?

Post by fcf18 » Mon Feb 11, 2019 4:45 pm

hi, I am looking for some advice on investment contribution. I am over the income limit for contributing to ROTH but I heard about this thing about backdoor Roth and wanted to try it. However, my broker informs me that it's not so easy because I already have a rollover IRA with 6 figure balance there. So if I do a backdoor ROTH conversion, it's almost nearly taxable amount.

So in this situation, is it still worth it to contribute to traditional IRA or is it just better to put it in regular taxable account?

ps. I maxed out 401k, HSA already.
Last edited by fcf18 on Tue Feb 12, 2019 12:57 am, edited 1 time in total.

deskjockey
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Re: still contribute to IRA even if it is not pretax?

Post by deskjockey » Mon Feb 11, 2019 4:52 pm

Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?

Thecallofduty
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Re: still contribute to IRA even if it is not pretax?

Post by Thecallofduty » Mon Feb 11, 2019 4:59 pm

Correct. Look up the pro rata rule for more details. If possible roll over ira to 401k then you can start contrubuting and making backdoor roth conversions.
-thecallofduty

megabad
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Re: still contribute to IRA even if it is not pretax?

Post by megabad » Mon Feb 11, 2019 7:22 pm

deskjockey wrote:
Mon Feb 11, 2019 4:52 pm
Can you roll over your IRA into your 401k?
+1 just roll the IRA into your 401k. Then do backdoor Roth.

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FiveK
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Re: still contribute to IRA even if it is not pretax?

Post by FiveK » Mon Feb 11, 2019 8:40 pm

If
a) your 401k allows incoming rollovers, and
b) you are happy with the investment choices in your 401, then
clearing out your pre-tax IRA by rolling it into your 401k is indeed a fine plan.

If either a) or b) is false, see Non-deductible traditional IRA - Bogleheads and the spreadsheet referenced therein to see if it might be beneficial for you.

Topic Author
fcf18
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Joined: Wed Jun 13, 2018 9:35 pm

Re: still contribute to IRA even if it is not pretax?

Post by fcf18 » Tue Feb 12, 2019 12:57 am

deskjockey wrote:
Mon Feb 11, 2019 4:52 pm
Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately

Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 » Tue Feb 12, 2019 12:58 am

FiveK wrote:
Mon Feb 11, 2019 8:40 pm
If
a) your 401k allows incoming rollovers, and
b) you are happy with the investment choices in your 401, then
clearing out your pre-tax IRA by rolling it into your 401k is indeed a fine plan.

If either a) or b) is false, see Non-deductible traditional IRA - Bogleheads and the spreadsheet referenced therein to see if it might be beneficial for you.
Thanks FiveK, will read the wiki link later

ryman554
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Re: still contribute to IRA even if it is not pretax?

Post by ryman554 » Tue Feb 12, 2019 10:34 am

fcf18 wrote:
Tue Feb 12, 2019 12:57 am
deskjockey wrote:
Mon Feb 11, 2019 4:52 pm
Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
Too bad. How often do you switch jobs? =)

In all seriousness, if you have a large tIRA balance, and don't see getting it into a 401(k) in the forseeable future, I would invest in a taxable account instead. Do try to pick a fund that is both low cost and does not throw off a lot of capital gains/dividends.

Topic Author
fcf18
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Re: still contribute to IRA even if it is not pretax?

Post by fcf18 » Tue Feb 12, 2019 9:43 pm

ryman554 wrote:
Tue Feb 12, 2019 10:34 am

Too bad. How often do you switch jobs? =)

In all seriousness, if you have a large tIRA balance, and don't see getting it into a 401(k) in the forseeable future, I would invest in a taxable account instead. Do try to pick a fund that is both low cost and does not throw off a lot of capital gains/dividends.
after reading through the wiki, I came to the same conclusion, putting it in IRA vs taxable might be worse financially at the end and it is definitely a lot more trouble to manage.

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FiveK
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Re: still contribute to IRA even if it is not pretax?

Post by FiveK » Tue Feb 12, 2019 10:14 pm

fcf18 wrote:
Tue Feb 12, 2019 9:43 pm
after reading through the wiki, I came to the same conclusion, putting it in IRA vs taxable might be worse financially at the end and it is definitely a lot more trouble to manage.
That is likely correct. It takes some unusual circumstances for the non-deductible IRA to be preferable.

ThisTimeItsDifferent
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Re: still contribute to IRA even if it is not pretax?

Post by ThisTimeItsDifferent » Tue Feb 12, 2019 10:24 pm

fcf18 wrote:
Tue Feb 12, 2019 12:57 am
deskjockey wrote:
Mon Feb 11, 2019 4:52 pm
Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
You could try a solo 401k for the purpose of accepting a rollover from the existing IRA and protectiing yourself from the pro rata rule.

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BolderBoy
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Location: Colorado

Re: still contribute to IRA even if it is not pretax?

Post by BolderBoy » Tue Feb 12, 2019 10:45 pm

ThisTimeItsDifferent wrote:
Tue Feb 12, 2019 10:24 pm
fcf18 wrote:
Tue Feb 12, 2019 12:57 am
deskjockey wrote:
Mon Feb 11, 2019 4:52 pm
Can you roll over your IRA into your 401k? That would allow you to do the backdoor Roth without paying taxes. That said, if your 401 has high fees, it may not be a good idea. Then again, what are the fees you're paying "your broker" to manage your investments (including, I assume, your Roth)?
great point, I never considered this, but I just checked, that's not available unfortunately
You could try a solo 401k for the purpose of accepting a rollover from the existing IRA and protectiing yourself from the pro rata rule.
Yes, if you have a side gig generating 1099 income in any amount.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

miket29
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Re: still contribute to IRA even if it is not pretax?

Post by miket29 » Wed Feb 13, 2019 1:37 am

don't do it is my advice. I recently posted in the forum almost the opposite question, how to unwind such a position I had taken when I was younger and thought the non-deductible IRA was the right way to save more money. The problem you'll have down the road is the same one you face now contemplating your backdoor conversion. The IRS forces you to pro-rate money you withdraw (or convert) over all IRAs, not just the one you actually take the funds from. It is going to be a real pain to track your pre-tax basis because in retirement it will change with every withdrawal from any IRA you have. And you'll have to track it forever; as long as you have any IRA money then some of it will be allocated to pre-tax even if you have completely emptied the IRA with those funds!

ryman554
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Joined: Sun Jan 12, 2014 9:44 pm

Re: still contribute to IRA even if it is not pretax?

Post by ryman554 » Wed Feb 13, 2019 12:43 pm

miket29 wrote:
Wed Feb 13, 2019 1:37 am
don't do it is my advice. I recently posted in the forum almost the opposite question, how to unwind such a position I had taken when I was younger and thought the non-deductible IRA was the right way to save more money. The problem you'll have down the road is the same one you face now contemplating your backdoor conversion. The IRS forces you to pro-rate money you withdraw (or convert) over all IRAs, not just the one you actually take the funds from. It is going to be a real pain to track your pre-tax basis because in retirement it will change with every withdrawal from any IRA you have. And you'll have to track it forever; as long as you have any IRA money then some of it will be allocated to pre-tax even if you have completely emptied the IRA with those funds!
If you have a 401(k) that accepts IRA money, you are able separate the pre-tax from the post-tax and get out of the mess.

retiredjg
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Re: still contribute to IRA even if it is not pretax?

Post by retiredjg » Wed Feb 13, 2019 1:49 pm

fcf18 wrote:
Tue Feb 12, 2019 12:57 am
great point, I never considered this, but I just checked, that's not available unfortunately
If you cannot roll your IRA into the 401k, you should not use the back door. Put the money into a taxable account instead. Or pay down the mortgage or whatever.

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