Need help converting Trad IRA to Roth IRA

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Topic Author
joelly
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Joined: Mon Oct 27, 2008 11:22 am

Need help converting Trad IRA to Roth IRA

Post by joelly »

Hi Everyone,

I need to convert a Trad IRA to Roth IRA. It's for my husband.

The information is the following:
Trad Ira - opened 4/14/2014 - balance now $22K
Roth Ira - opened 11/3/2020 - balance now $12K

We are doing the backdoor Roth maximizing once every year. It's just easier for us to do it once a year. We stopped contributing to his Trad IRA since we opened and contributing to his Roth IRA in 2020.

A few months ago, Bogleheads advised to convert the Trad IRA to Roth IRA. I just got around to do it now.

My question is:
#1 - Should I open a new Roth IRA and convert the Trad Ira balance of $22K into a newly opened Roth IRA?
#2 - Should I use the existing Roth IRA and convert the Trad Ira into this existing Roth IRA?

Many thanks for all your help,

-joelly
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retired@50
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Re: Need help converting Trad IRA to Roth IRA

Post by retired@50 »

I'd use option #2. I don't see any benefit in creating a new Roth IRA.

Regards,
This is one person's opinion. Nothing more.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

retired@50 wrote: Fri Aug 05, 2022 2:40 pm I'd use option #2. I don't see any benefit in creating a new Roth IRA.

Regards,
Thank you so much!

Vanguard doesn't withheld taxes for it when I convert the traditional ira into roth ira. I was hoping that they would settle that upon conversion. This means I have to settle the taxes and penalty when I report my taxes next year, isn't it?
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

Oh correction, actually I should call them if I want to convert and for them to withhold the taxes.

"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-992-8327 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

I just read this fine print.
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retired@50
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Re: Need help converting Trad IRA to Roth IRA

Post by retired@50 »

joelly wrote: Fri Aug 05, 2022 3:37 pm Oh correction, actually I should call them if I want to convert and for them to withhold the taxes.

"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-992-8327 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

I just read this fine print.
I typically prefer to pay any income taxes on the conversion using other money (like cash in my savings account) so that if I convert $10k from traditional IRA to Roth IRA, then the Roth IRA gets the full $10k.

Regards,
This is one person's opinion. Nothing more.
yog
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Re: Need help converting Trad IRA to Roth IRA

Post by yog »

retired@50 wrote: Fri Aug 05, 2022 3:45 pm
joelly wrote: Fri Aug 05, 2022 3:37 pm Oh correction, actually I should call them if I want to convert and for them to withhold the taxes.

"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-992-8327 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

I just read this fine print.
I typically prefer to pay any income taxes on the conversion using other money (like cash in my savings account) so that if I convert $10k from traditional IRA to Roth IRA, then the Roth IRA gets the full $10k.

Regards,
In addition, the tax withholding from tIRA prior to age 59.5 leads to an early withdrawal penalty.
Last edited by yog on Fri Aug 05, 2022 3:50 pm, edited 1 time in total.
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

I would suggest to open a second Roth IRA, only to track the "contributory Roth IRA" funds separate from the "Conversion Roth IRA" funds. With the Roth conversions, each and every conversion will have its own 5-year clock for withdrawing funds with(out) penalties; if you separate the Roth IRA that's funded purely by conversion it would be easier on you to track.

The IRS doesn't care, for them of course you just have a giant Roth IRA. I suggest this *purely* for your own accounting/tracking purposes. You can combine both into a single Roth IRA of course, but then it is incumbent on YOU to track the conversion clock ...

Finally, of course, if you are going to NOT withdraw the funds until 5 years passed *AND* you are older than 59.5, then no penalties, and if that is your intent, no need for a separate Roth IRA either.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Fri Aug 05, 2022 2:37 pm The information is the following:
Trad Ira - opened 4/14/2014 - balance now $22K
Roth Ira - opened 11/3/2020 - balance now $12K

We are doing the backdoor Roth maximizing once every year. It's just easier for us to do it once a year. We stopped contributing to his Trad IRA since we opened and contributing to his Roth IRA in 2020.
When you say "We are doing the backdoor Roth..." does that mean your husband has been using that process to get money into his Roth IRA? If so, has he been putting the correct 31-Dec balance of his traditional IRA on Form 8606?
placeholder
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Re: Need help converting Trad IRA to Roth IRA

Post by placeholder »

Yeah that's what stood out for me because if that 12k got into the husband's roth by conversion then the existing ira would have made those conversion partially taxable and the tira would be partially after tax now so the op needs to stop doing anything until all that is clarified.
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celia
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Re: Need help converting Trad IRA to Roth IRA

Post by celia »

You can use the existing Roth.

Don’t withhold taxes since he will be giving up space in his retirement accounts (ie, that conversion would probably give up 1/4 of the $22K to the IRS and your state. If he is under 59.5, he will also have an early withdrawal penalty, the same as if he put that “tax money” in a Taxable account, then sent it to the IRS and the state.
FiveK wrote: Fri Aug 05, 2022 5:38 pm When you say "We are doing the backdoor Roth..." does that mean your husband has been using that process to get money into his Roth IRA? If so, has he been putting the correct 31-Dec balance of his traditional IRA on Form 8606?
We are asking if you reported the Backdoor Roth properly on Form 8606 in the last two years. Line 14 should show some basis remaining in the IRA while that same amount was taxed. The remaining basis carries over to the following year(s), so that if you didn’t file it for 2020 or 2021, you need to start by fixing that. This could also affect the tax you owed and tax returns should first be corrected with more tax owed.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

celia wrote: Sat Aug 06, 2022 5:07 am You can use the existing Roth.

Don’t withhold taxes since he will be giving up space in his retirement accounts (ie, that conversion would probably give up 1/4 of the $22K to the IRS and your state. If he is under 59.5, he will also have an early withdrawal penalty, the same as if he put that “tax money” in a Taxable account, then sent it to the IRS and the state.
FiveK wrote: Fri Aug 05, 2022 5:38 pm When you say "We are doing the backdoor Roth..." does that mean your husband has been using that process to get money into his Roth IRA? If so, has he been putting the correct 31-Dec balance of his traditional IRA on Form 8606?
We are asking if you reported the Backdoor Roth properly on Form 8606 in the last two years. Line 14 should show some basis remaining in the IRA while that same amount was taxed. The remaining basis carries over to the following year(s), so that if you didn’t file it for 2020 or 2021, you need to start by fixing that. This could also affect the tax you owed and tax returns should first be corrected with more tax owed.
In regards to Form 8606, I didn't know about this until a few months ago. I have to get together with my tax preparer. I have sent her the forms that Vanguard sent me to look at and determine the next step.

So maybe I should wait on that before converting tira to roth ira then...
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celia
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Re: Need help converting Trad IRA to Roth IRA

Post by celia »

joelly wrote: Mon Aug 08, 2022 11:56 am In regards to Form 8606, I didn't know about this until a few months ago. I have to get together with my tax preparer. I have sent her the forms that Vanguard sent me to look at and determine the next step.

So maybe I should wait on that before converting tira to roth ira then...
It appears that either you and/ or your tax preparer don’t understand the Backdoor Roth thoroughly. Our wiki page has several examples of how to report the taxes.

Or maybe you forgot to tell the tax preparer that you made non-deductible contributions for two years.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

celia wrote: Mon Aug 08, 2022 1:06 pm
joelly wrote: Mon Aug 08, 2022 11:56 am In regards to Form 8606, I didn't know about this until a few months ago. I have to get together with my tax preparer. I have sent her the forms that Vanguard sent me to look at and determine the next step.

So maybe I should wait on that before converting tira to roth ira then...
It appears that either you and/ or your tax preparer don’t understand the Backdoor Roth thoroughly. Our wiki page has several examples of how to report the taxes.

Or maybe you forgot to tell the tax preparer that you made non-deductible contributions for two years.
Yes, I forgot to mention it to her AND I didn't realize that Vanguard had sent me the tax forms via the website. It's been a mess and I have emailed her everything (including the transaction history since inception of both tira and roth ira).
Katietsu
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Re: Need help converting Trad IRA to Roth IRA

Post by Katietsu »

Please verify that the tax preparer understands the correct reporting. It is an area that preparers seem to have a higher than average rate of mistakes based on the online posts anyway for whatever that is worth.

If you are unsure, you could post the contribution history and conversion history here to verify the numbers on the 8606.

You do not want to pay the taxes from the conversion. Having Vanguard take out the taxes would result in an early withdrawal penalty if under 59.5 and would result in less money sheltered in the Roth. If paying taxes he taxes from other money is not possible, I would not do the conversion right now.

Can you increase withholding from paychecks for the rest of the year to cover the additional taxes? For example, if you need about $3000 withheld for federal and $500 for state, you can fill out a new W-4 and have an extra $400 taken out of each paycheck, or whatever the correct amount would be. You would fill out the state form similarly.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

Katietsu wrote: Mon Aug 08, 2022 3:57 pm Please verify that the tax preparer understands the correct reporting. It is an area that preparers seem to have a higher than average rate of mistakes based on the online posts anyway for whatever that is worth.

If you are unsure, you could post the contribution history and conversion history here to verify the numbers on the 8606.

You do not want to pay the taxes from the conversion. Having Vanguard take out the taxes would result in an early withdrawal penalty if under 59.5 and would result in less money sheltered in the Roth. If paying taxes he taxes from other money is not possible, I would not do the conversion right now.

Can you increase withholding from paychecks for the rest of the year to cover the additional taxes? For example, if you need about $3000 withheld for federal and $500 for state, you can fill out a new W-4 and have an extra $400 taken out of each paycheck, or whatever the correct amount would be. You would fill out the state form similarly.
I'd love to post here the contribution history and conversion history from Vanguard. How do I do that? I've never done that before.

Yes, I can increase the withholding from my paychecks. This is not an issue.
tibbitts
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Re: Need help converting Trad IRA to Roth IRA

Post by tibbitts »

joelly wrote: Fri Aug 05, 2022 3:33 pm
retired@50 wrote: Fri Aug 05, 2022 2:40 pm I'd use option #2. I don't see any benefit in creating a new Roth IRA.

Regards,
Thank you so much!

Vanguard doesn't withheld taxes for it when I convert the traditional ira into roth ira. I was hoping that they would settle that upon conversion. This means I have to settle the taxes and penalty when I report my taxes next year, isn't it?
I do Roth conversion on Vanguard.com almost every day (did one just a few hours ago), and every time I have the opportunity to withhold any amount for Federal or State tax I want, so I'm not understanding why you don't have this option. Since Vanguard keeps telling me (also every day now) that I should convert my mutual fund account to a brokerage account so I'll have more features, I'm assuming this is isn't account-type specific.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Mon Aug 08, 2022 4:33 pm I'd love to post here the contribution history and conversion history from Vanguard. How do I do that? I've never done that before.
Perhaps the easiest way is simply hand-typing the amounts contributed and converted each year, rather than trying to post a picture of your Vanguard account screen.

E.g., we would need any non-zero amounts you would enter in the green cells in area C1:G13 of the 'Form8606' tab in the personal finance toolbox spreadsheet. Note that if you use that tool itself, it should show you how the various years' 8606s should look (change cell C1 to the tax year of the first non-deductible contribution).
Charon
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Re: Need help converting Trad IRA to Roth IRA

Post by Charon »

tibbitts wrote: Mon Aug 08, 2022 4:41 pm I do Roth conversion on Vanguard.com almost every day (did one just a few hours ago), and every time I have the opportunity to withhold any amount for Federal or State tax I want, so I'm not understanding why you don't have this option.
OP's husband is under 59 1/2, so withholding like this would be subject to an early withdrawal penalty. Normally it's recommended to pay conversion taxes from other funds for this reason.
tibbitts
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Re: Need help converting Trad IRA to Roth IRA

Post by tibbitts »

Charon wrote: Mon Aug 08, 2022 5:12 pm
tibbitts wrote: Mon Aug 08, 2022 4:41 pm I do Roth conversion on Vanguard.com almost every day (did one just a few hours ago), and every time I have the opportunity to withhold any amount for Federal or State tax I want, so I'm not understanding why you don't have this option.
OP's husband is under 59 1/2, so withholding like this would be subject to an early withdrawal penalty. Normally it's recommended to pay conversion taxes from other funds for this reason.
I haven't had that problem for a while so I hadn't thought of that. So is the lack of that option a result of account-holder age or the platform in use?
placeholder
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Re: Need help converting Trad IRA to Roth IRA

Post by placeholder »

The big concern is if there were roth conversions made with this tira balance because you'd not only need updated 8606 forms but would owe tax on the conversions necessitating amended returns.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

placeholder wrote: Mon Aug 08, 2022 6:00 pm The big concern is if there were roth conversions made with this tira balance because you'd not only need updated 8606 forms but would owe tax on the conversions necessitating amended returns.
This TIRA has never been converted to ROTH IRA.
TIRA was opened in 2014 and stopped contributing in 2018.
ROTH IRA was opened in 2020 and did backdoor ROTH since 2020.
sailaway
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Re: Need help converting Trad IRA to Roth IRA

Post by sailaway »

joelly wrote: Mon Aug 08, 2022 6:10 pm
placeholder wrote: Mon Aug 08, 2022 6:00 pm The big concern is if there were roth conversions made with this tira balance because you'd not only need updated 8606 forms but would owe tax on the conversions necessitating amended returns.
This TIRA has never been converted to ROTH IRA.
TIRA was opened in 2014 and stopped contributing in 2018.
ROTH IRA was opened in 2020 and did backdoor ROTH since 2020.
What tIRA did you contribute to in order to do a backdoor Roth? How did you do the conversions? Are you sure you weren't just contributing to Roth?
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

joelly wrote: Mon Aug 08, 2022 6:10 pm
placeholder wrote: Mon Aug 08, 2022 6:00 pm The big concern is if there were roth conversions made with this tira balance because you'd not only need updated 8606 forms but would owe tax on the conversions necessitating amended returns.
This TIRA has never been converted to ROTH IRA.
TIRA was opened in 2014 and stopped contributing in 2018.
ROTH IRA was opened in 2020 and did backdoor ROTH since 2020.
There is no "This TIRA" and "That TIRA". In the eyes of IRS, you only have one giant-TIRA, blasted into pieces where one-piece is in one account at this broker, and the other-piece is at the other broker. If you convert a non-deductible contribution to Roth, the conversion is deemed proportional.

Let me illustrate with examples.
Say you have $100k at Fidelity in a pre-tax TIRA (equivalent to your "This TIRA")
Say you have made a non-deductible contribution of $5k to a traditional IRA at Vanguard (equivalent to your "That TIRA")
Then you converted the $5k at Vanguard to Roth.

*YOU MAY BE THINKING*, that $5k non-deductible contribution on which taxes are paid, $5k converted to Roth, taxes should be $0.
NOT SO FAST.

IRS says: Just prior to conversion you have $105k in one giant TIRA. Of which $5k is non-deductible contribution. So the proportion of deductible-to-non-deductible is 10:1, or 91% to 9% approximately.

You converted $5k of this giant TIRA to Roth. So 9% of the conversion = $450 is attributable to non-deductible contribution. The rest of the $4550 of the conversion is coming from your pre-tax contributions. $4550 will be added to your taxable income.

*** Can you check your past returns, and make sure that this is how it's been calculated? Have you filed Form 8606? *** It is extremely important, you might have been underpaying taxes to IRS and it may only be a matter of time before you will receive a CP-2000 notice asking for unpaid taxes and penalties.

That red text I highlighted, is also very ambiguous. What did you do exactly? Did you open a Roth IRA and contribute to the Roth IRA? OR, did you open a Traditional IRA *and* Roth IRA at the same time, contribute to Traditional IRA and converted to Roth IRA? [ Same question as @sailaway ]
Last edited by lakpr on Mon Aug 08, 2022 6:26 pm, edited 1 time in total.
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celia
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Re: Need help converting Trad IRA to Roth IRA

Post by celia »

joelly wrote: Fri Aug 05, 2022 2:37 pm Hi Everyone,

I need to convert a Trad IRA to Roth IRA. It's for my husband.

The information is the following:
Trad Ira - opened 4/14/2014 - balance now $22K
Roth Ira - opened 11/3/2020 - balance now $12K

We are doing the backdoor Roth maximizing once every year. It's just easier for us to do it once a year. We stopped contributing to his Trad IRA since we opened and contributing to his Roth IRA in 2020.
Let’s back up for a minute. I prepared a longer response, but then went back to read the original post, part of which I am quoting.

My confusion is that you said you did a Backdoor Roth but you also said you didn’t contribute to the Traditional IRA since the Roth IRA was opened. I’m thinking you didn’t understand what a Backdoor Roth is. We need to know which IRA received the new money going in last year and the year before. And how many IRAs (any kind) does your DH have at all custodians?

I’m thinking that the previous advice (which I didn’t look for) was to help you get ready to do a Backdoor Roth, but you haven’t done one yet. Thank you for helping us understand this.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

joelly wrote: Mon Aug 08, 2022 6:10 pm
placeholder wrote: Mon Aug 08, 2022 6:00 pm The big concern is if there were roth conversions made with this tira balance because you'd not only need updated 8606 forms but would owe tax on the conversions necessitating amended returns.
This TIRA has never been converted to ROTH IRA.
TIRA was opened in 2014 and stopped contributing in 2018.
ROTH IRA was opened in 2020 and did backdoor ROTH since 2020.
Big scratch to this.

How do I put a transaction history here in the post? I just downloaded from Vanguard.
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retired@50
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Re: Need help converting Trad IRA to Roth IRA

Post by retired@50 »

joelly wrote: Mon Aug 08, 2022 6:33 pm How do I put a transaction history here in the post? I just downloaded from Vanguard.
Step 1. Eliminate any identifying or personal information from the image.

Step 2. See this link for how to post an image to Bogleheads forum.
https://www.bogleheads.org/wiki/Posting ... eads_forum

Regards,
This is one person's opinion. Nothing more.
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

joelly wrote: Mon Aug 08, 2022 6:33 pm How do I put a transaction history here in the post? I just downloaded from Vanguard.
If it is in text form, you can put it between the [ c o d e ] and [ / c o d e ] tags.
** eliminate the blanks between those tags, I put the blanks intentionally so that the phpBB software does not interpret it as actual tags.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

celia wrote: Mon Aug 08, 2022 6:26 pm
joelly wrote: Fri Aug 05, 2022 2:37 pm Hi Everyone,

I need to convert a Trad IRA to Roth IRA. It's for my husband.

The information is the following:
Trad Ira - opened 4/14/2014 - balance now $22K
Roth Ira - opened 11/3/2020 - balance now $12K

We are doing the backdoor Roth maximizing once every year. It's just easier for us to do it once a year. We stopped contributing to his Trad IRA since we opened and contributing to his Roth IRA in 2020.
Let’s back up for a minute. I prepared a longer response, but then went back to read the original post, part of which I am quoting.

My confusion is that you said you did a Backdoor Roth but you also said you didn’t contribute to the Traditional IRA since the Roth IRA was opened. I’m thinking you didn’t understand what a Backdoor Roth is. We need to know which IRA received the new money going in last year and the year before. And how many IRAs (any kind) does your DH have at all custodians?

I’m thinking that the previous advice (which I didn’t look for) was to help you get ready to do a Backdoor Roth, but you haven’t done one yet. Thank you for helping us understand this.
Big huge sorry for the confusion :confused

I downloaded a transaction history of both TIRA and Roth IRA.

I just realized that when I did the backdoor Roth, I contributed the max into the Trad IRA first then 24 hrs later, convert that into Roth.

Here's the transaction history based on what I printed from Vanguard website:
4/14/2014 $5,500 contributed to TIRA (deductible contribution)
4/6/2015 $3,000 contributed to TIRA (deductible contribution)
4/12/2016 $4,000 contributed to TIRA (deductible contribution)
12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2021 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2021 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)

That's it.

Please let me know how much trouble are we in now....

I really appreciate it.

Thank you for being so patient with me.
Last edited by joelly on Mon Aug 08, 2022 7:13 pm, edited 1 time in total.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Mon Aug 08, 2022 6:47 pm I downloaded a transaction history of both TIRA and Roth IRA.
Those transactions are only part of the story. The amount for line 6 of each year's Form 8606 is also needed. Note the highlighted word all on the form for that line.
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

joelly wrote: Mon Aug 08, 2022 6:47 pm I downloaded a transaction history of both TIRA and Roth IRA.

I just realized that when I did the backdoor Roth, I contributed the max into the Trad IRA first then 24 hrs later, convert that into Roth.

Here's the transaction history based on what I printed from Vanguard website:
4/14/2014 $5,500 contributed to TIRA (deductible contribution)
4/6/2015 $3,000 contributed to TIRA (deductible contribution)
4/12/2016 $4,000 contributed to TIRA (deductible contribution)
12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)

That's it.

Please let me know how much trouble are we in now....

I really appreciate it.

Thank you for being so patient with me.
So you have NOT done this backdoor Roth in the year 2021? That's just a tiny bit better, even though there is the possibility that you will have to restate the tax returns for both 2020 and 2021.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Mon Aug 08, 2022 6:47 pm 12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
Are these for two different people, or were the last two done in 2021?
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

FiveK wrote: Mon Aug 08, 2022 7:06 pm
joelly wrote: Mon Aug 08, 2022 6:47 pm 12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
Are these for two different people, or were the last two done in 2021?
This is for one person only. Only hubby has TIRA.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Mon Aug 08, 2022 7:10 pm
FiveK wrote: Mon Aug 08, 2022 7:06 pm
joelly wrote: Mon Aug 08, 2022 6:47 pm 12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
Are these for two different people, or were the last two done in 2021?
This is for one person only. Only hubby has TIRA.
Then having contributed $11,999 in 2020 is a problem. Are you sure that is what happened?
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

lakpr wrote: Mon Aug 08, 2022 6:54 pm
joelly wrote: Mon Aug 08, 2022 6:47 pm I downloaded a transaction history of both TIRA and Roth IRA.

I just realized that when I did the backdoor Roth, I contributed the max into the Trad IRA first then 24 hrs later, convert that into Roth.

Here's the transaction history based on what I printed from Vanguard website:
4/14/2014 $5,500 contributed to TIRA (deductible contribution)
4/6/2015 $3,000 contributed to TIRA (deductible contribution)
4/12/2016 $4,000 contributed to TIRA (deductible contribution)
12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)

That's it.

Please let me know how much trouble are we in now....

I really appreciate it.

Thank you for being so patient with me.
So you have NOT done this backdoor Roth in the year 2021? That's just a tiny bit better, even though there is the possibility that you will have to restate the tax returns for both 2020 and 2021.
Sorry.... actually the 12/27/2020 should be 12/27/2021, it's a typo. Also the 12/28/2020 should be 12/28/2021.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

FiveK wrote: Mon Aug 08, 2022 7:12 pm
joelly wrote: Mon Aug 08, 2022 7:10 pm
FiveK wrote: Mon Aug 08, 2022 7:06 pm
joelly wrote: Mon Aug 08, 2022 6:47 pm 12/16/2020 $5,999 contributed to TIRA (non-deductible contribution)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
12/27/2020 $6,000 contributed to TIRA (non-deductible contribution)
12/28/2020 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
Are these for two different people, or were the last two done in 2021?
This is for one person only. Only hubby has TIRA.
Then having contributed $11,999 in 2020 is a problem. Are you sure that is what happened?
So sorry it's a typo. The 12/27/2020 and 12/28/2020 are actually 12/27/2021 and 12/28/2021. Sorry it's a typo. I corrected my original respond.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

FiveK wrote: Mon Aug 08, 2022 5:00 pm
joelly wrote: Mon Aug 08, 2022 4:33 pm I'd love to post here the contribution history and conversion history from Vanguard. How do I do that? I've never done that before.
Perhaps the easiest way is simply hand-typing the amounts contributed and converted each year, rather than trying to post a picture of your Vanguard account screen.

E.g., we would need any non-zero amounts you would enter in the green cells in area C1:G13 of the 'Form8606' tab in the personal finance toolbox spreadsheet. Note that if you use that tool itself, it should show you how the various years' 8606s should look (change cell C1 to the tax year of the first non-deductible contribution).
Based on the transaction history, here's how it seems the input for the spreadsheet mentioned above should look (with guesses for the last two values):
Image

Can you provide accurate numbers for the two row 10 (that will be Form 8606 line 6) numbers? You should be able to get them from year-end statements or an online look at the 31-Dec balances for those years for that account.

Do the other years' numbers look correct?
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

Now that you have clarified ...
1) what is the balance remaining in the TIRA account for your hubby?
2) If you convert all that amount to Roth IRA, what would your income be for the year 2022?

If the increased income is still going to place you in the 24% tax bracket, now might be a GOOD time to convert since both the stocks and bonds have experienced a decline in 2022, so you get to convert at a cheaper price. Eliminating the entire TIRA balance is one way to simplify.

Given that (unless Congress acts and passes a different tax law) the tax rates are set to revert to 2017 levels, when the current 22% tax bracket will become 25% and the current 24% tax bracket will become 28%, converting to Roth now may not be a bad idea at all to eliminate headache for 2022 and beyond.

This does NOT necessarily lessen the pain of having to restate your past tax returns (post what your hubby's Form 8606 states for both 2020 and 2021 to confirm), along with the year-end balances as of 12/31/2020 and 12/31/2021 for the tIRA account -- to confirm. But eliminating the entire tIRA account balance by converting it away to Roth will avoid *future* pain.
Katietsu
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Re: Need help converting Trad IRA to Roth IRA

Post by Katietsu »

In May 2022, you wrote:
My husband (49 yo) has a TIRA with a balance of $18,000. This was a rollover from his 401k awhile ago.

Was this $18,000 actually a result of the 2014-2016 traditional IRA contributions? Or is there another traditional IRA in husband’s name?


On a different note, remember to amend the state tax returns too much if applicable.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

Katietsu wrote: Mon Aug 08, 2022 10:07 pm In May 2022, you wrote:
My husband (49 yo) has a TIRA with a balance of $18,000. This was a rollover from his 401k awhile ago.

Was this $18,000 actually a result of the 2014-2016 traditional IRA contributions? Or is there another traditional IRA in husband’s name?

On a different note, remember to amend the state tax returns too much if applicable.
I think that was my mistake. I should have checked first before I make that statement. I confused his TIRA with my own rollover IRA.
Topic Author
joelly
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Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

lakpr wrote: Mon Aug 08, 2022 7:33 pm Now that you have clarified ...
1) what is the balance remaining in the TIRA account for your hubby?
2) If you convert all that amount to Roth IRA, what would your income be for the year 2022?

If the increased income is still going to place you in the 24% tax bracket, now might be a GOOD time to convert since both the stocks and bonds have experienced a decline in 2022, so you get to convert at a cheaper price. Eliminating the entire TIRA balance is one way to simplify.

Given that (unless Congress acts and passes a different tax law) the tax rates are set to revert to 2017 levels, when the current 22% tax bracket will become 25% and the current 24% tax bracket will become 28%, converting to Roth now may not be a bad idea at all to eliminate headache for 2022 and beyond.

This does NOT necessarily lessen the pain of having to restate your past tax returns (post what your hubby's Form 8606 states for both 2020 and 2021 to confirm), along with the year-end balances as of 12/31/2020 and 12/31/2021 for the tIRA account -- to confirm. But eliminating the entire tIRA account balance by converting it away to Roth will avoid *future* pain.
1) The balance remaining in the TIRA account for hubby per the July stmt is $11,505.62
2) Not sure but I'm going to try to answer your question #2. Our gross for the year of 2022 is $275K. This is not including bonus which is usually occur in Nov-Dec every year. Should I increase this gross with the ending balance of his TIRA?

I need to go back and take a look at any 8606 form we have filed in the previous year. I can't recall if we ever filed one. My memory isn't what it used to be. I have to double check and get back to you.
Topic Author
joelly
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Joined: Mon Oct 27, 2008 11:22 am

Re: Need help converting Trad IRA to Roth IRA

Post by joelly »

FiveK wrote: Mon Aug 08, 2022 7:28 pm
FiveK wrote: Mon Aug 08, 2022 5:00 pm
joelly wrote: Mon Aug 08, 2022 4:33 pm I'd love to post here the contribution history and conversion history from Vanguard. How do I do that? I've never done that before.
Perhaps the easiest way is simply hand-typing the amounts contributed and converted each year, rather than trying to post a picture of your Vanguard account screen.

E.g., we would need any non-zero amounts you would enter in the green cells in area C1:G13 of the 'Form8606' tab in the personal finance toolbox spreadsheet. Note that if you use that tool itself, it should show you how the various years' 8606s should look (change cell C1 to the tax year of the first non-deductible contribution).
Based on the transaction history, here's how it seems the input for the spreadsheet mentioned above should look (with guesses for the last two values):
Image

Can you provide accurate numbers for the two row 10 (that will be Form 8606 line 6) numbers? You should be able to get them from year-end statements or an online look at the 31-Dec balances for those years for that account.

Do the other years' numbers look correct?
How do you post the excel image like this please? I was going to do it but then I couldn't.

Please advise.
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FiveK
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Re: Need help converting Trad IRA to Roth IRA

Post by FiveK »

joelly wrote: Tue Aug 09, 2022 5:15 pm How do you post the excel image like this please? I was going to do it but then I couldn't.
I use the Google Drive approach described in the wiki article retired@50 linked in this post.

That wiki article also discusses other ways.

The full process:
1) Use the Windows Snip & Sketch tool to take a screen shot of the Excel display.
2) Save the screen shot with file type .PNG to my computer
3) Go to my "FiveK" account Google drive where there is a folder named "Bogleheads post images"
4) Open that folder and upload the screen shot file
5) Right click on file in the Google drive folder and select "Get link"
6) Change "General access" to "Anyone with the link" and "Viewer"
7) Click "Copy link"
8) Open a "Post Reply" window (using either that button or the quote button) and paste the copied link
9) Use the "Link Text and Location Copier" (https://addons.mozilla.org/en-US/firefo ... on-copier/) mentioned in the Linking articles into forum posts - Bogleheads.org thread, and that I have modified to generate the following string (except there are no spaces inside the square brackets): [ i m g]https://lh3.googleusercontent.com/d/ [ /i m g]
10) Cut and paste the Google drive file link to replace the space between "d/" and "[" in the img string.

...and it takes much less time to do it than to write out the above steps. ;) Good luck!
lakpr
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Re: Need help converting Trad IRA to Roth IRA

Post by lakpr »

joelly wrote: Tue Aug 09, 2022 5:11 pm
lakpr wrote: Mon Aug 08, 2022 7:33 pm Now that you have clarified ...
1) what is the balance remaining in the TIRA account for your hubby?
2) If you convert all that amount to Roth IRA, what would your income be for the year 2022?

If the increased income is still going to place you in the 24% tax bracket, now might be a GOOD time to convert since both the stocks and bonds have experienced a decline in 2022, so you get to convert at a cheaper price. Eliminating the entire TIRA balance is one way to simplify.

Given that (unless Congress acts and passes a different tax law) the tax rates are set to revert to 2017 levels, when the current 22% tax bracket will become 25% and the current 24% tax bracket will become 28%, converting to Roth now may not be a bad idea at all to eliminate headache for 2022 and beyond.

This does NOT necessarily lessen the pain of having to restate your past tax returns (post what your hubby's Form 8606 states for both 2020 and 2021 to confirm), along with the year-end balances as of 12/31/2020 and 12/31/2021 for the tIRA account -- to confirm. But eliminating the entire tIRA account balance by converting it away to Roth will avoid *future* pain.
1) The balance remaining in the TIRA account for hubby per the July stmt is $11,505.62
2) Not sure but I'm going to try to answer your question #2. Our gross for the year of 2022 is $275K. This is not including bonus which is usually occur in Nov-Dec every year. Should I increase this gross with the ending balance of his TIRA?

I need to go back and take a look at any 8606 form we have filed in the previous year. I can't recall if we ever filed one. My memory isn't what it used to be. I have to double check and get back to you.
The top line of the 24% tax bracket is $340k taxable income, which means it does not include standard deductions, pre-tax 401(k) contributions and any health-care premiums paid through employer-based insurance plan. Therefore, unless your hubby's year-end bonus is expected to be more than $70k, adding another $11.5k to the income will *STILL* keep you in the 24% tax bracket.

$11.5k is also reasonably small enough that you can just convert it away to Roth IRA. By far the simplest course of action to take, and if I were in your shoes, I'd strongly consider it.
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celia
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Location: SoCal

Re: Need help converting Trad IRA to Roth IRA

Post by celia »

OP, Let’s back up and look at a corrected transaction history for DH’s tIRA so you can understand where you misunderstood things. My corrections are in red:
joelly wrote: Mon Aug 08, 2022 6:47 pm Here's the transaction history based on what I printed from Vanguard website:
4/14/2014 $5,500 contributed to TIRA (deductible contribution)
4/6/2015 $3,000 contributed to TIRA (deductible contribution)
4/12/2016 $4,000 contributed to TIRA (deductible contribution)
[Up until this time, all the contributions were deducted (ie, are pre-tax) on your tax return (and assumes you filed Married Filing Jointly).]

12/16/2020 $5,999 contributed to TIRA (non-deductible contribution) (ie, post-tax dollars)
12/21/2020 convert $5,999 from 12/16/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
[Since the IRS considers all the money in all your tIRAs as co-mingled, the conversion was partly from each of the previous contributions. So some pre-tax and some post-tax money was converted while some of each stayed behind in the tIRA. Taxes are due on the converted pre-tax dollars that Form 8606 calculates.]

12/27/2021 $6,000 contributed to TIRA (non-deductible contribution) (ie, post-tax dollars)
12/28/2021 convert $6,000 from 12/27/2020 TIRA contribution to Roth Ira via backdoor (Vanguard rep on the phone helping me)
[Since the IRS considers all the money in all your tIRAs as co-mingled, the conversion was partly from each of the previous contributions. So some pre-tax and some post-tax money was converted while some of each stayed behind in the tIRA. Taxes are due on the converted pre-tax dollars that Form 8606 calculates.]
1. Joelly, please confirm your husband received a Form 1099-R for 2020 for the $5,999 conversion and a 1099-R for 2021 for a $6,000 conversion.

2. Then please confirm what the correct current tIRA balance is. The first post in this thread said the account has $22K in it but recently you replied $11K. That’s a big difference for a week. And I also suggest you convert the balance so everything gets cleaned up. Since there is some post-tax money still in the tIRA, those dollars won’t be taxed during the conversion.

3. Then if you want someone here to tell you what your Form 8606 for your husband should look like (and you share correct info with your tax preparer), we (and the tax preparer) need to know what the account balance was on Dec. 31, 2020 and on Dec. 31, 2021. Can we also have 2 volunteers to do the calcs and see if the results match each other? (I don’t have time this week.)

4. One other issue is what you, Joelly, have done to YOUR IRAs during this time. If you were filing jointly and your joint income was too high for your husband to contribute directly to a Roth, then it was also too high for you. Right? What kind of IRA contributions and conversions did you make during these years?
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Re: Need help converting Trad IRA to Roth IRA

Post by placeholder »

Laying out the history makes me wonder how things went from being able to deduct tira to not being able to contribute to roth so was there a change in jobs so that income went up dramatically or being covered by a workplace plan or something?
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