Backdoor Roth w/ existing tIRA

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Topic Author
RoundingAgain
Posts: 10
Joined: Mon Apr 05, 2021 2:10 pm

Backdoor Roth w/ existing tIRA

Post by RoundingAgain »

I just want to make sure I’m understanding correctly…

I have a tIRA I created ~8y ago that was a 401k rollover from a previous employer. I never contributed to it beyond the initial roll over of my 401k.

I never opened a Roth bc my income was too high, then I learned about the backdoor Roth.

In order to implement a backdoor Roth I need to rollover my tIRA into my current employer’s 401k, correct? On Vanguard (current 401k) it shows that I can and I believe that it qualifies as an “eligible account”. The tIRA is with Schwab however, will that create any issues?

If I’m able to rollover my tIRA into my current employer’s 401k, I then just contribute to a newly established tIRA and convert that to a Roth through the backdoor method?
lakpr
Posts: 7659
Joined: Fri Mar 18, 2011 9:59 am

Re: Backdoor Roth w/ existing tIRA

Post by lakpr »

Assuming you do not have any other Rollover IRA or a Traditional IRA anywhere else, yes you got the steps correct.

Make sure all steps are completed prior to December 31st of the year. If you are not able to complete by December 31st, then do NOT do the Roth conversion, push out that Roth conversion into the new year.

Your Rollover IRA balance will be out of the market for approximately 2 weeks during this rollover process. It's just the way it is ... one way to mitigate the risk of missing out on a market boom in these 2 weeks is to sell off all bonds in the current employer 401k (if any) and buy stocks. Buy back those bonds once the rollover is complete.

One last caveat: Make sure you take copies of the statements from Schwab and Vanguard regarding the rollover. I did this type of Rollover IRA --> 401k in 2016, and in 2018 I got a CP-2000 notice from the IRS saying I withdrew $92k from my Rollover IRA and I did not pay estimated taxes, and with penalties they want $42k odd in additional taxes. I responded to that notice with statements of exact amount withdrawn from my T Rowe Price account (where the Rollover IRA was held) and from my 401k plan, showing that exact amount is rolled in. Then the IRS sent back a letter saying "case closed".

be prepared for this to happen to you too ...
Topic Author
RoundingAgain
Posts: 10
Joined: Mon Apr 05, 2021 2:10 pm

Re: Backdoor Roth w/ existing tIRA

Post by RoundingAgain »

Thanks for the heads up!
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