How can we do backdoor IRA as a family with a traditional IRA account

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Topic Author
Lvertang
Posts: 6
Joined: Wed Feb 05, 2020 1:43 pm

How can we do backdoor IRA as a family with a traditional IRA account

Post by Lvertang » Thu May 21, 2020 12:07 am

Apologies these may be entry level questions, but I really couldn't find any answer...

He - 2019 Annual salary $150K
- Has a tranditional IRA $35k, which was set up when he had a lot lower income. Over the years, it increased from $20K to $35K.
- Also has a Roth IRA $30K
She - 2019 annual salary $90k
- Has only Roth IRA $25K

This is the first year that our income gets into the Roth IRA contribution phase out zone. My questions are

1. When I calculate how much we can contribute to Roth IRA this year, should I use family income, even though the IRAs are individual accounts? I think the answer is yes, but hope it can be confirmed.

2. Can we do backdoor Roth, since my husband has a tranditional IRA account already, if we don't want to do the Roth conversion? In another word, does my husband's traditional IRA affect my ability to do backdoor IRA of $6000?

3. We forsee that our income will be higher every year. In this case, is it better if we do the Roth conversion now?

Thank you in advance for any answer!

mhalley
Posts: 8240
Joined: Tue Nov 20, 2007 6:02 am

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by mhalley » Thu May 21, 2020 12:34 am

Yes, if filing mj then you have to use your total income.
IRAs are individual, so wife can do the backdoor but husband can’t unless he gets rid of the trad ira, either by rolling it into a 401k or converting it to a Roth. The lower your income, the less taxes you would pay on the Roth conversion.
If there is no 401k available, he could make a little money on the side and setup an individual 401k to roll the ira into.
So you have 3 options:
1. Wife contributes to backdoor Roth, husband does not.
2. Convert husband trad ira to Roth and both do backdoor Roth. Note that there is little benefit in doing this unless you have money available in a taxable account to pay the taxes.
3. Husband makes some money from side gig and rolls trad ira to solo 401k, then does backdoor Roth.

Topic Author
Lvertang
Posts: 6
Joined: Wed Feb 05, 2020 1:43 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by Lvertang » Thu May 21, 2020 1:01 am

mhalley wrote:
Thu May 21, 2020 12:34 am
Yes, if filing mj then you have to use your total income.
IRAs are individual, so wife can do the backdoor but husband can’t unless he gets rid of the trad ira, either by rolling it into a 401k or converting it to a Roth. The lower your income, the less taxes you would pay on the Roth conversion.
If there is no 401k available, he could make a little money on the side and setup an individual 401k to roll the ira into.
Got it. Thank you for the answer.

wfrobinette
Posts: 1011
Joined: Fri Feb 20, 2015 3:14 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by wfrobinette » Thu May 21, 2020 2:49 pm

Lvertang wrote:
Thu May 21, 2020 12:07 am
Apologies these may be entry level questions, but I really couldn't find any answer...

He - 2019 Annual salary $150K
- Has a tranditional IRA $35k, which was set up when he had a lot lower income. Over the years, it increased from $20K to $35K.
- Also has a Roth IRA $30K
She - 2019 annual salary $90k
- Has only Roth IRA $25K

This is the first year that our income gets into the Roth IRA contribution phase out zone. My questions are

1. When I calculate how much we can contribute to Roth IRA this year, should I use family income, even though the IRAs are individual accounts? I think the answer is yes, but hope it can be confirmed.

2. Can we do backdoor Roth, since my husband has a tranditional IRA account already, if we don't want to do the Roth conversion? In another word, does my husband's traditional IRA affect my ability to do backdoor IRA of $6000?

3. We forsee that our income will be higher every year. In this case, is it better if we do the Roth conversion now?

Thank you in advance for any answer!
Does husband have 401k? Does said 401k allow roll ins of IRAs? Many do.

If they do that's how I would do it and have done it.

blue_skies45
Posts: 6
Joined: Mon Jul 16, 2018 8:37 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by blue_skies45 » Thu May 21, 2020 3:04 pm

Just open a new traditional IRA account at a different institution.

User avatar
CAsage
Posts: 1715
Joined: Sun Mar 27, 2016 6:25 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by CAsage » Thu May 21, 2020 3:58 pm

blue_skies45 wrote:
Thu May 21, 2020 3:04 pm
Just open a new traditional IRA account at a different institution.
When doing a backdoor IRA, ALL accounts must be considered. Opening it at another institution has nothing to do with this, would not solve the problem. I do note that the traditional IRA held by husband might be considered modest in light of your annual income and possible future prospects. And you are in the Federal 24% bracket (it's a good place to be); if you anticipate your income going up, there may be no better time to just convert that IRA, pay the taxes and move on. Taxes ... not likely to get better. I would also note that technically the husband can do a backdoor Roth IRA at this point, but he would have to prorate this year's IRA over the total balance and that's just adding misery.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Topic Author
Lvertang
Posts: 6
Joined: Wed Feb 05, 2020 1:43 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by Lvertang » Fri May 22, 2020 12:35 pm

wfrobinette wrote:
Thu May 21, 2020 2:49 pm
Lvertang wrote:
Thu May 21, 2020 12:07 am
Apologies these may be entry level questions, but I really couldn't find any answer...

He - 2019 Annual salary $150K
- Has a tranditional IRA $35k, which was set up when he had a lot lower income. Over the years, it increased from $20K to $35K.
- Also has a Roth IRA $30K
She - 2019 annual salary $90k
- Has only Roth IRA $25K

This is the first year that our income gets into the Roth IRA contribution phase out zone. My questions are

1. When I calculate how much we can contribute to Roth IRA this year, should I use family income, even though the IRAs are individual accounts? I think the answer is yes, but hope it can be confirmed.

2. Can we do backdoor Roth, since my husband has a tranditional IRA account already, if we don't want to do the Roth conversion? In another word, does my husband's traditional IRA affect my ability to do backdoor IRA of $6000?

3. We forsee that our income will be higher every year. In this case, is it better if we do the Roth conversion now?

Thank you in advance for any answer!
Does husband have 401k? Does said 401k allow roll ins of IRAs? Many do.

If they do that's how I would do it and have done it.
Thank you for the reminder. We will ask the employer.

Topic Author
Lvertang
Posts: 6
Joined: Wed Feb 05, 2020 1:43 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by Lvertang » Fri May 22, 2020 12:39 pm

CAsage wrote:
Thu May 21, 2020 3:58 pm
blue_skies45 wrote:
Thu May 21, 2020 3:04 pm
Just open a new traditional IRA account at a different institution.
When doing a backdoor IRA, ALL accounts must be considered. Opening it at another institution has nothing to do with this, would not solve the problem. I do note that the traditional IRA held by husband might be considered modest in light of your annual income and possible future prospects. And you are in the Federal 24% bracket (it's a good place to be); if you anticipate your income going up, there may be no better time to just convert that IRA, pay the taxes and move on. Taxes ... not likely to get better. I would also note that technically the husband can do a backdoor Roth IRA at this point, but he would have to prorate this year's IRA over the total balance and that's just adding misery.
Appreciate the answer. Yeah it might be a pain to prorate the IRA based on what i read. We might just roll the Traditional IRA over and pay the tax.

cherijoh
Posts: 6582
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by cherijoh » Fri May 22, 2020 12:53 pm

CAsage wrote:
Thu May 21, 2020 3:58 pm
blue_skies45 wrote:
Thu May 21, 2020 3:04 pm
Just open a new traditional IRA account at a different institution.
When doing a backdoor IRA, ALL accounts must be considered. Opening it at another institution has nothing to do with this, would not solve the problem. I do note that the traditional IRA held by husband might be considered modest in light of your annual income and possible future prospects. And you are in the Federal 24% bracket (it's a good place to be); if you anticipate your income going up, there may be no better time to just convert that IRA, pay the taxes and move on. Taxes ... not likely to get better. I would also note that technically the husband can do a backdoor Roth IRA at this point, but he would have to prorate this year's IRA over the total balance and that's just adding misery.
Good points. And I would also like to point out that a Backdoor Roth is a 2-step process of (a) making a non-deductible tIRA contribution followed by (b) a Roth conversion. The OP is apparently unaware of this fact:
Lvertang wrote:
Thu May 21, 2020 12:07 am
Can we do backdoor Roth .... if we don't want to do the Roth conversion?
This lack of awareness can lead to problems at tax-time since your tax software is unlikely ask about whether you did a "back door Roth", but it will ask about Roth Conversions.

blue_skies45
Posts: 6
Joined: Mon Jul 16, 2018 8:37 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by blue_skies45 » Fri May 22, 2020 1:11 pm

CAsage wrote:
Thu May 21, 2020 3:58 pm
blue_skies45 wrote:
Thu May 21, 2020 3:04 pm
Just open a new traditional IRA account at a different institution.
When doing a backdoor IRA, ALL accounts must be considered. Opening it at another institution has nothing to do with this, would not solve the problem. I do note that the traditional IRA held by husband might be considered modest in light of your annual income and possible future prospects. And you are in the Federal 24% bracket (it's a good place to be); if you anticipate your income going up, there may be no better time to just convert that IRA, pay the taxes and move on. Taxes ... not likely to get better. I would also note that technically the husband can do a backdoor Roth IRA at this point, but he would have to prorate this year's IRA over the total balance and that's just adding misery.
Good to know, I wasn't aware of that.

Topic Author
Lvertang
Posts: 6
Joined: Wed Feb 05, 2020 1:43 pm

Re: How can we do backdoor IRA as a family with a traditional IRA account

Post by Lvertang » Fri May 22, 2020 1:25 pm

mhalley wrote:
Thu May 21, 2020 12:34 am
Yes, if filing mj then you have to use your total income.
IRAs are individual, so wife can do the backdoor but husband can’t unless he gets rid of the trad ira, either by rolling it into a 401k or converting it to a Roth. The lower your income, the less taxes you would pay on the Roth conversion.
If there is no 401k available, he could make a little money on the side and setup an individual 401k to roll the ira into.
So you have 3 options:
1. Wife contributes to backdoor Roth, husband does not.
2. Convert husband trad ira to Roth and both do backdoor Roth. Note that there is little benefit in doing this unless you have money available in a taxable account to pay the taxes.
3. Husband makes some money from side gig and rolls trad ira to solo 401k, then does backdoor Roth.
I wasn't aware of the solo 401k option. Thanks of the info.

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