17

The Roth/Traditional decision is complex, but can be broken down into a set of simple rules. Ideally, you want to choose to tax your money at the lowest possible rate. This specifically refers to your marginal rate, the rate you last $100 was taxed or next $100 of income with be taxed. That, in itself, is another issue, answered with questions here ...


12

Yes. A most emphatic yes. I suggest you look at your 2014 return and project what 2015 will look like. I'd convert enough to "top off" the 15% bracket. Note, if you overshoot it, and in April 2016, see that you are say $5K into the 25% rate, you can just recharacterize the amount you went over and nail the bracket to the dollar. If you have the time and ...


10

Rollovers are different than Contributions. You can rollover any amount as often as you want in every year, as it is basically just a transfer to an equivalent ('already taxed retirement') account. They do not affect the contribution limits. Contributions to 401k ROTH are limited per calendar year, and it doesn't matter through which employer they are made....


10

No, Roth accounts are from already taxed money, and changing the provider has no effect. The only tax you pay for Roth money is on the gains you made and only if you take it out before you are 59.5 and before the account is 5 years old. And in case you are worried about the five year minimum account age, the oldest account you had counts. So moving the ...


8

Like JoeTaxpayer said, I don't know of any difference between the backdoor and a regular Roth IRA contribution besides the issue with existing pre-tax IRA money. So if it is your practice to contribute at the beginning of the year (good for you, most people wait until the last minute), then doing a backdoor seems like the safe choice. Some people have ...


8

In addition to JoeTaxpayer's thorough answer, I just want to tackle one particular question that was also asked: ...all employer contributions are pretax? There are a few main reasons that employer contributions go into the traditional bucket instead of the Roth bucket: It costs the employer less. Since Roth is after tax money, in order to contribute X ...


8

There used to be income limits on Roth conversions. They were eliminated in 2010 by the Tax Increase Prevention and Reconciliation Act of 2005, probably to increase tax revenue. This combined with the lack of income limits on non-deductible Traditional IRAs opened up the backdoor Roth IRA. We don't know if politicians intended this, but closing it now would ...


7

Yes, it is possible. Several things to remember: Penalty free withdrawal is for contributions only. Employee match is going to the Traditional (non-Roth) 401k Withdrawing from your retirement contributions will cripple your retirements savings significantly due to the compounding effect of the missing earnings. Essentially, you're planning to shoot ...


7

if I roll over existing Roth 401k to Roth IRA, will it allow me to put a full 18k in the new Roth 401k from the new employer? No. The contribution limit for one year is $18k for all employee retirement plans. So since you have already maxed out your contributions with the first 401(k), you will not be able to contribute to the new employer's 401(k). ...


6

Assuming that the conversion was completely non-taxable (i.e. your Traditional IRA was 100% basis), then the converted money can be taken out at any time whatsoever (no 5 year or age stuff), without tax or penalty, similar to directly contributed money. For withdrawing conversions and rollovers within 5 years of the conversion or rollover, the penalty only ...


6

The downside of the conversion for some, as you note, is the proration of existing pretax IRA money. You've already considered this, and it's not an issue for you. It's a simple bit of paperwork, nothing to scare you away from this approach.


6

2-3 is what it takes to get this completed, yes, it's paperwork, but let me give you an example - We have $100K in non deducted IRA money. By getting the pretax deposits out of the IRAs we are good to convert the $100K tax free. 20 years of growth (even at 7%) will grow this to $400K. That $300K growth would be taxed if it weren't for the paperwork. Even if ...


6

Money in an IRA that has both deductible and non-deductible contributions in it is called mixed basis. Any withdrawal - including a conversion - must be taken proportionally from each category (after the tax year it's contributed, anyway). So if you have $55,000 in your IRA, of which $5,500 was contributed non-deductible and $49,500 was contributed as ...


6

(Really a comment on JoeTaxpayer's answer but it's too long) There's one big factor that for some people tips things strongly in favor of the Roth: While the limits on paper for traditional and Roth are the same, in practice they are not--you can contribute more to a Roth than you can to a traditional. While the contribution limits are the "same" in both ...


6

All $30000 goes into the Roth IRA and you pay a separate tax bill of $3000. Or more specifically, it it taxed just like if your your regular income went up by $30000 (assuming the entire conversion was taxable), just like if you earned $30000 more salary that year. And the amount that your tax goes up is just the amount that it would normally go up if your ...


6

Pre-tax 401(k) to Roth IRA conversions are always taxed as regular income. Remember contributions to a pre-tax 401(k) come from income that has never been taxed, so they're taxed when you withdraw or convert. There are no capital gains (short- or long-term) in a 401(k) or any other type of retirement account; it's all treated the same.


6

I'm guessing you heard about how an existing pre-tax Traditional IRA interferes with the regular backdoor Roth IRA. To avoid income limits on direct Roth IRA contributions, you first make a non-deductible Traditional IRA contribution (no income limits) and then quickly convert. Since there are minimal earnings the taxes are nominal. However, if you have ...


5

There is no segregation of amounts that you have in Rollover (Traditional) IRAs when it comes to figuring out how much of your basis is being converted from your Traditional IRA into a Roth IRA. So, yes, you will lose the benefit of being able to make nondeductible contributions to your Traditional IRA each year and rolling them over into a Roth IRA ...


5

Yes. You can convert an unlimited amount from a traditional IRA to a Roth, and pay the tax to the extent any of the account wasn't yet taxed. It does not count against any annual deposit limits.


5

Yes. Dying works great for what you'd like to accomplish. The key point is that you need to specify a beneficiary (or multiple beneficiaries) on the account . When you meet your maker, the beneficiary would have no tax to pay for withdrawals from a Roth IRA. For a regular pre tax IRA, withdrawals are taxed. Either account would have RMDs, required minimum ...


5

No. The "last year" choice is for new deposits. i.e. I have until tax day this year to make the deposit for tax year 2016. Conversions are made as of the date they occur, in other words, a conversion is for the tax year reflecting the date the conversion itself happened. The recharacterization, if any, will undo the conversion up until you file, ...


5

My educated guess: cost, both in dollars and time. First off, adding an after-tax option adds another layer of complexity. I would not be surprised if 401(k) providers charged more for it. On top of that, human resources people will have to answer questions from employees about what the difference is between Roth and after-tax (if they know themselves). ...


5

You won't end up being double taxed. The money in your Traditional IRA can be grouped into three categories: Deductible contributions Non-deductible contributions Earnings If you convert the entire balance of your Traditional IRA to Roth, you'll pay regular income tax on the value of #1 and #3, but not #2. Unfortunately you can't choose to only convert #2 ...


5

The post-conversion balances would look like A: Deductible IRA: $5000 Non-Deductible IRA: $0 Roth IRA: $5000 The brokerage has no idea how much of your IRAs are deductible, and are just going to do what you ask (i.e. convert $5000 from account X to account Y). Plus you could have IRAs at other brokerages that they aren't even aware of. However, this won't ...


4

Withdrawal of a contribution (plus earnings) before the tax filing deadline is penalty-free. (But withdrawing contributions on a Roth IRA is always tax-free and penalty-free anyway, so the only potential difference is perhaps the earnings, what little there may be. I don't understand why you feel like you would pay tax or penalty on the entire withdrawal in ...


4

The I in IRA stands for Individual. You can do a backdoor conversion of all or part of your Traditional IRA to a Roth IRA all by yourself regardless of whether your spouse converts her IRA or not, and the taxable part of the rollover is determined by what your Form 8606 says, not what is on her Form 8606. But since you file a joint return with your spouse, ...


4

You can convert additional amounts from Traditional IRA to Roth IRA as often as you want. What there is a limit on, is "reconversion" -- if you convert to Roth IRA, then recharacterize it back to Traditional IRA (undoing the conversion), then you are restricted from "re-converting" that money to Roth IRA again in the 30 days after the recharacterization or ...


4

You are in an interesting income range. At 59, do you have a good idea what your Social Security benefit(s) will be? If so, you need to take that into account. Some time ago, I wrote an article titled The Phantom Couple’s Tax Rate Zone in which I analyzed how a 15% bracket couple experience a phantom 27.5% rate as their social security benefit becomes taxed. ...


4

You don't. Say you deposited $5000. Then you converted $4950 to Roth. You declare $4950 as the amount converted and you're done.


4

No. The "I" stands for individual. Funds cannot be transferred between spouse's IRAs with 2 exceptions that I know. After death, the surviving spouse can take the funds into her name, or upon divorce, a judge can issue a QDRO directing such a transfer.


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