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I have a 401K (Pre Tax) plan rollover to a personal Traditional IRA. I also have a Roth IRA account. Currently, I do not contribute to the 401K plan, since it was from a previous employer. I do contribute max to the Roth IRA plan.

Next year my income will be over the limit to contribute to Roth IRA. What are my best options to still contribute to Roth IRA?

Options:

  1. Since, I already have a pre-tax traditional IRA, should I start moving some amount $12000 a year into Roth IRA?

  2. Should I take a look into a backdoor contribution to Roth IRA?

Any advice is appreciated.

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I've already posted answers to your related questions, but since nobody has responded to this one yet, I'll take a stab at it too. Obviously parts of this will be repetitive.

  1. This is a variation of the classic pre-tax versus Roth question. In general I lean toward the pre-tax side for most people. Since you mentioned your income is over the Roth limit, I would say pre-tax (i.e. not doing Roth conversions) is an even more likely to be the right choice for you. The exceptions would be if you expect to withdraw significantly more in retirement than you made while working (possibly due to required minimum distributions), or if you're convinced income tax rates will increase significantly in the future. Also, I think you're aware of this, but there's nothing special about $12k/year.
  2. Because of your large pre-tax traditional IRA balance, the only way you can do a tax-free backdoor Roth is if you first rollover your traditional IRA back into a qualified plan like a 401(k). Assuming this is not a possibility, the answer to this question depends on #1. If you decide to do Roth conversions, I think it'd be reasonable to go ahead and do non-deductible traditional IRA contributions too. Because of pro rata rules it will slightly reduce the taxable portion of your conversions. The main downside is you'll need to keep track of your non-deductible "basis" (which won't be exhausted until your traditional IRA is empty), or else you'll be double taxed on those contributions. Also worth mentioning: the pro rata taxes are determined separately for each spouse. So if one spouse doesn't have an existing traditional IRA balance, they are able to do the backdoor Roth tax free.
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  • The basis is exhausted only when the Traditional IRA is completely emptied; even the very last withdrawal that empties the very last Traditional IRA account that one still holds consists in part of the basis. That is, I recommend deleting the word "likely" in that last parenthetical remark in your answer. Jul 6 at 17:04
  • @DilipSarwate I was thinking of the situation where one does a rollover of all but the non-deductible basis into a 401(k), but you're right, even then the basis is still not exhausted until the traditional IRA is empty.
    – Craig W
    Jul 6 at 21:34

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