My employer offers no retirement plan; my income is in the phase out for a RothIRA, so I will be unable to contribute this year (any contributions this year are from remove of excess contributions in 2019). Complicating things is that I have a rollover IRA from a previous 401(k) plan.

I'd like to put the money which was going to the Roth to some other investment for retirement? Are there any other retirement account options I can take advantage of (non-deductible traditional IRA contributions)? If not, how can I best invest for retirement (ETFs)?

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    You can always contribute it to an IRA (there is no limit), and then immediately do a conversion to Roth. Google 'backdoor conversion'. You can do that even retroactively for 2019 till Apr/15. – Aganju Mar 11 '20 at 0:42
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    Do the income limits for IRAs apply if you have no work retirement options? I thought there was an exemption for that. – Vality Mar 11 '20 at 1:00
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    @Vality: the phaseouts/limits for deducting a trad-IRA contribution is only if you or spouse is covered by an employer plan; the phaseout/limit for contributing to Roth is everybody. That's why backdoor works here; there is no limit for contributing to trad (without deducting), and no limit for converting nondeductible trad to Roth. But if you already have deductible (pretax) trad-IRA money, then backdoor doesn't work so well. – dave_thompson_085 Mar 11 '20 at 8:51
  • @Aganju I forgot to mention that i have a rollover IRA from a 401(k) plan; I believe that converting to a roth would trigger some tax to be generated on that as well, which could be significant, correct? – Andy Mar 11 '20 at 22:56
  • Yes; and the IRS assumes that your contributions merge with the existing IRA, so you can only convert 'mixed' money. Could still be plan; do the math. – Aganju Mar 12 '20 at 2:05

I would argue that you have three possible options, two tax advantaged and one not.

  1. Backdoor Roth - Make a non-deductible contribution to a Traditional IRA and immediately convert it to a Roth. This is essentially the same as contributing to a Roth but with no income limits.

    You said that you currently have a pre-tax IRA, this can complicate things. You will have to pay some taxes due to the pro-rata rule. The IRS does not let you convert only post-tax funds, you have to do it proportional to your total pre/post tax money. This leaves some post-tax money in the Traditional IRA and converts some of the pre-tax money.

    Say you have $10,000 pre-tax, make a $6,000 non-deductible contribution to the Traditional IRA, and then roll $6,000 over. You would have to calculate using IRS Form 8606

    $6,000 / ($10,000 + $6,000) = 0.375

    0.375 x $6,000 = $2,250 (NOT taxed)

    $6,000 - $2,250 = $3,750 (TAXABLE)

    This would leave your Roth IRA with $6,000 post-tax. BUT your Traditional IRA would now contain $6,250 in pre-tax money and $3,750 in post-tax money.

  2. Get a high deductible plan (HDHP) with a health savings (HSA) from your employer - Money goes into the account tax free and if used for qualified medical expenses, comes out tax free. Any money left over after 59 1/2 years old works just like a Traditional IRA (distributions taxed as regular income). Money in an HSA can also be invested like an IRA, although the investment options are usually limited and slightly more expensive. You should also pay close attention to the coverage that the HDHP offers. No sense in saving a few tax dollars if you have to pay a crazy amount of money on medical expenses that aren't covered.

  3. Plain-old taxable brokerage account - No tax advantage, but long-term capital-gains tax is still relatively low compared to regular income.
  • If you choose #3 you can target funds that spin off very little capital gains, such as an S&P 500 fund, and pay almost no tax until the money is withdrawn. Good answer! – Pete B. Mar 11 '20 at 17:03
  • You skipped what I'd consider an important #4: You could deposit money to a traditional IRA (and don't convert it to a Roth). – Jay Mar 11 '20 at 19:24
  • Can you clarify if #1 is a viable option if I also have an existing rollover IRA from a 401(k)? I thought the backdoor triggers tax on that as well. Sorry for forgetting to include that originally in my question. – Andy Mar 11 '20 at 22:51
  • @Andy You are correct, edited the answer – Nosjack Mar 12 '20 at 16:49

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