mechanics of backdoor roth conversion for MFJ couple

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Topic Author
roadnottaken
Posts: 13
Joined: Wed Jun 05, 2019 6:01 am
Location: San Diego, CA

mechanics of backdoor roth conversion for MFJ couple

Post by roadnottaken » Wed Jun 12, 2019 1:03 pm

I believe I can contribute up to $12,000 to an IRA account for subsequent conversion to a roth IRA (backdoor), as the limit entails $6k each for me and my spouse. Can I do a single transaction with $12k? or do I need to do two separate transactions for $6k each, since the limits are for individuals?

Thanks

nolesrule
Posts: 1228
Joined: Thu Feb 26, 2015 10:59 am

Re: mechanics of backdoor roth conversion for MFJ couple

Post by nolesrule » Wed Jun 12, 2019 1:07 pm

roadnottaken wrote:
Wed Jun 12, 2019 1:03 pm
I believe I can contribute up to $12,000 to an IRA account for subsequent conversion to a roth IRA (backdoor), as the limit entails $6k each for me and my spouse. Can I do a single transaction with $12k? or do I need to do two separate transactions for $6k each, since the limits are for individuals?

Thanks
The I in IRA stands for Individual. You would need separate accounts, 1 in each name.

Topic Author
roadnottaken
Posts: 13
Joined: Wed Jun 05, 2019 6:01 am
Location: San Diego, CA

Re: mechanics of backdoor roth conversion for MFJ couple

Post by roadnottaken » Wed Jun 12, 2019 1:34 pm

Thanks, can you do them at the same time (i.e. same day)?

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TomatoTomahto
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Re: mechanics of backdoor roth conversion for MFJ couple

Post by TomatoTomahto » Wed Jun 12, 2019 1:43 pm

roadnottaken wrote:
Wed Jun 12, 2019 1:34 pm
Thanks, can you do them at the same time (i.e. same day)?
Yes.
ETA: as long as the funds clear.
Okay, I get it; I won't be political or controversial. The Earth is flat.

life in slices
Posts: 61
Joined: Mon Apr 15, 2019 6:00 pm

Re: mechanics of backdoor roth conversion for MFJ couple

Post by life in slices » Wed Jun 12, 2019 1:44 pm

roadnottaken wrote:
Wed Jun 12, 2019 1:34 pm
Thanks, can you do them at the same time (i.e. same day)?
No issues

$6K into your IRA and $6K into your wife's IRA

When the deposit clears and is available for conversion - covert your IRA over to your Roth IRA then convert your wife's IRA to her Roth IRA

Good luck!

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: mechanics of backdoor roth conversion for MFJ couple

Post by retiredjg » Wed Jun 12, 2019 1:55 pm

I suggest that you not get into this too quickly. Many people mess it up and unwinding it can be long and unpleasant.

Read everything you can on the back door. There are hundreds of threads available here. Also read at least 20 threads on how people have messed it up. And finally, figure out the paperwork first. The procedure is easy to do. The paperwork is the problem. Don't depend on your tax preparer do help. Many of them mess it up as well.

Know this procedure inside and out before you go for it.

Good luck!

ryman554
Posts: 1189
Joined: Sun Jan 12, 2014 9:44 pm

Re: mechanics of backdoor roth conversion for MFJ couple

Post by ryman554 » Thu Jun 13, 2019 8:56 am

roadnottaken wrote:
Wed Jun 12, 2019 1:03 pm
I believe I can contribute up to $12,000 to an IRA account for subsequent conversion to a roth IRA (backdoor), as the limit entails $6k each for me and my spouse. Can I do a single transaction with $12k? or do I need to do two separate transactions for $6k each, since the limits are for individuals?

Thanks
Do you have a current IRA account(s) at all?

1. Make sure each spouse has traditional and roth IRA accounts open.
2. Contribute to the IRS maximum (this year it's $6k) in each traditional account.
3. Go online and figure out how to convert the value in the traditional IRA to the roth.
Presto.

However, there can be a lot of complications if you have already contributed to an IRA.
1. If you have *any* money in traditional IRA from previous years, then you will be taxed come next year when doing your 1040. The amount of the conversion subject to tax is determined by form 8606, so best best it to just go get it and see what it says. Basically, you are taxed on any money that you (previously) took a deduction on inside your IRA, on a pro-rated basis.
1a: If you do have $$ in an IRA AND have not taken a tax deduction on the entire amount (due to high wages), then make sure you have filled out form 8606 (yep, same form) for each of your earlier tax years AND go keep a spreadsheet so you can track it before you start the roth conversion stuff.
2. You can't get around #1 by opening up multiple IRAs, since you must pool ALL IRAs for an individual together, no matter what accounts they are in.
3. You can get around #1 if you have a 401(k) that accepts rollovers from traditional IRAs -- since they only accept the pre-tax monies.
4. I might ask if you can just contribute to a roth directly... that's always the better strategy if you can.

Next year at tax time you will have to deal with:
1. 1099-R: withdrawal from an IRA account -> which you must report to the IRS on your 1040 and tell them the taxable amount as figured out by #1, above, including any growth in the account betwen when you contributed and when you converted. This shows up as taxable income from retirement plans on your 1040. Last year for me was $1 of income..
2. You'll get a 5498<sic?> later on which you store that tells you how much money you contributed to a roth.
3. start a spreadsheet now detaling how much you converted to the roth, and how much of that contribution was taxed during the conversion process. That money will be subject to a 10% penalty if you withdraw within 5 years.

life in slices
Posts: 61
Joined: Mon Apr 15, 2019 6:00 pm

Re: mechanics of backdoor roth conversion for MFJ couple

Post by life in slices » Thu Jun 13, 2019 9:06 am

retiredjg wrote:
Wed Jun 12, 2019 1:55 pm
I suggest that you not get into this too quickly. Many people mess it up and unwinding it can be long and unpleasant.

Read everything you can on the back door. There are hundreds of threads available here. Also read at least 20 threads on how people have messed it up. And finally, figure out the paperwork first. The procedure is easy to do. The paperwork is the problem. Don't depend on your tax preparer do help. Many of them mess it up as well.

Know this procedure inside and out before you go for it.

Good luck!
Good point

To the OP:

Good article here on how not to mess up your paperwork:
https://www.whitecoatinvestor.com/17-wa ... -roth-ira/

Tutorial on BDR if needed:
https://www.whitecoatinvestor.com/backd ... -tutorial/

If filing by turbotax:
https://thefinancebuff.com/how-to-repor ... botax.html

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