excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
OK. I am in the process of establishing a Backdoor Roth IRA.

First question. How many attendings out there contribute to a Backdoor Roth IRA every year?
--I am just curious

I had a very very small Traditional IRA with Fidelity. In order to avoid the pro rata rule and getting that money taxed in a Roth conversion, I am in the process of rolling that money into my employer based 457b.

Once that money is in my employer based 457b retirement account, I will have no money in IRA's, and I can contribute yearly to traditional IRA's and immeidately convert them to Roth IRA's.

Second question. Should I go with Fidelity or Vanguard for my Backdoor Roth IRA's?
--My traditional IRA that I liquidated was with Fidelity. I have a taxable account with Vanguard.

Third question and more. Does Fidelity actually charge $50 to close an account?? Does this mean that if I contribute to a traditional IRA every year and immediately convert it to a Roth, am I going to get charged $50 by Fidelity because I closed the traditional IRA I just opened? Does Vanguard have fees to close accounts? Does it cost me in the form of fees to do a Backdoor Roth on Vanguard? --I already know I will have to pay tax on any amount the contribution increased from the time period of contribution to conversion. I undedrstand that the amount it would have increased is probably very little, as you should be prepared to convert as soon as the contribution posts online, which is about a few days.

Any thoughts on this matter or answers to these quesitions or insight that I might be missing is greatly appreciated.
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
I do a Roth conversion every year with Vanguard. There aren't any fees involved.
I'd convert your traditional IRA to a Roth and just pay the tax if you have the cash avsilable.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
I do a Roth conversion every year with Vanguard. There aren't any fees involved.
I'd convert your traditional IRA to a Roth and just pay the tax if you have the cash avsilable.
Curious. Why would you suggest paying tax on converting my current traditional IRA instead of placing it into my employer retirement plan and avoid the tax altogether until I am 60?

It's only like $5500. If I convert that, I would have to pay tax on all of it since my only contribution years ago was a deductible contribution. I would have to pay like $2000 in tax. I understand that I have fewer investment options in my employer plan, but I feel rolling it into the employer plan is still a better option than converting it and paying $2000 in tax on it now
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
Curious. Why would you suggest paying tax on converting my current traditional IRA instead of placing it into my employer retirement plan and avoid the tax altogether until I am 60?

It's only like $5500. If I convert that, I would have to pay tax on all of it since my only contribution years ago was a deductible contribution. I would have to pay like $2000 in tax. I understand that I have fewer investment options in my employer plan, but I feel rolling it into the employer plan is still a better option than converting it and paying $2000 in tax on it now
I'd prefer the Roth because I pay a known tax rate today rather than an unknown tax rate in the future. It's a bit of a gamble since you don't know what your income will be in retirement or what the tax rate will be on that income. I assume my tax rate in retirement will be similar to my current rate (lower income but higher rates for each tax bracket in retirement), and I'm willing to risk paying higher taxes today to protect myself from the possibility of much higher taxes in the future.
I also like the Roth IRA conversion and the Roth 401k because they increase the effective maximum contribution level compared to traditional IRAs and 401k's.
If we switch to a consumption based system of taxation I'll be screwed, but that is unlikely in my opinion.
 
Last edited:

dr doze

To be able to forget means to sanity
Lifetime Donor
10+ Year Member
Dec 6, 2006
3,737
1,717
Status
Attending Physician
Roth conversions are great for those who currently have low tax brackets and the cash sitting around to pay the taxes on the conversion. (residents with some bucks in the bank, an attending taking a year off) They tend to be bad ideas for folks like attending anesthesiologists who have high tax brackets currently and can expect lower tax brackets in the future. If you are looking to time the tax bracket market and are betting that your tax bracket will be going up, or if you think that the assets in your IRA are currently lowly valued by the market, those would be exceptions as to why a high tax bracket investor would choose to convert.
 

SexPanther

This could be a problem
10+ Year Member
Feb 5, 2006
447
1
Status
Fellow [Any Field]
I contribute to a backdoor Roth yearly for my wife and I. I use Vanguard for everything thus far; I love their index choices (including their target retirement funds which I use exclusively cuz I KISS right now, just find the year that matches your desired asset allocation), super low expense ratios and no fees. The traditional IRA doesn't close once you convert the $$ to a Roth; it remains open for future contributions and conversions. As you said, there really won't be any taxes to pay if you do the conversion w/in several days of the contribution posting to your account.

IMO, This should be done in addition to, not as a replacement for, your pre-tax retirement funds (401k, solo-401k) etc. as a means to increase your retirement savings.

The White Coat Investor has several goid posts about this topic on his blog.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
I contribute to a backdoor Roth yearly for my wife and I. I use Vanguard for everything thus far; I love their index choices (including their target retirement funds which I use exclusively cuz I KISS right now, just find the year that matches your desired asset allocation), super low expense ratios and no fees. The traditional IRA doesn't close once you convert the $$ to a Roth; it remains open for future contributions and conversions. As you said, there really won't be any taxes to pay if you do the conversion w/in several days of the contribution posting to your account.

IMO, This should be done in addition to, not as a replacement for, your pre-tax retirement funds (401k, solo-401k) etc. as a means to increase your retirement savings.

The White Coat Investor has several goid posts about this topic on his blog.
Thanks. Good to know from Vanguard. Yes this IRA is a supplement to employer plan. So is the Vanguard traditional IRA just kept open with a balance of $0 after the conversion and kept that way until next year when you are ready to do another backdoor conversion?
 

SexPanther

This could be a problem
10+ Year Member
Feb 5, 2006
447
1
Status
Fellow [Any Field]
Thanks. Good to know from Vanguard. Yes this IRA is a supplement to employer plan. So is the Vanguard traditional IRA just kept open with a balance of $0 after the conversion and kept that way until next year when you are ready to do another backdoor conversion?
Exactly. When I log onto Vanguard's site it shows our Roth IRAs with the fund/shares/balance etc and then our Trad IRAs with the fund/no shares/no balance etc. Literally takes 5 minutes to do online; very very user friendly.

Here's a link to a quick review that has links to other resources (such as the white coat investors piece) - http://physicianfamily.com/backdoor-roth-ira-contribution-physician/
 

pgg

Laugh at me, will they?
Administrator
10+ Year Member
Dec 15, 2005
12,159
8,188
Home Again
Status
Attending Physician
Roth conversions are great for those who currently have low tax brackets and the cash sitting around to pay the taxes on the conversion. (residents with some bucks in the bank, an attending taking a year off) They tend to be bad ideas for folks like attending anesthesiologists who have high tax brackets currently and can expect lower tax brackets in the future. If you are looking to time the tax bracket market and are betting that your tax bracket will be going up, or if you think that the assets in your IRA are currently lowly valued by the market, those would be exceptions as to why a high tax bracket investor would choose to convert.
I took most of 2013 "off" via spending 8/12ths of it in Afghanistan. No moonlighting + combat zone tax exclusion on my Navy pay = 2013 will be the lowest tax bracket I'll ever see again, pre-retirement. I recently rolled everything in my SEP-IRA into a Roth IRA and will pay taxes on the conversion when I file in April. I suspect I'll never do a Roth conversion again for exactly the reasons you just described.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
Confused.

Doze and pgg.

Why wouldn't a brand new attending anesthesiologist who has no previous IRA want to do backdoor Roths??

Am I missing something?

Doze, u said Roths are bad ideas for people with high income like anesthesiologists. Again, if this anesthesiologist has no previous IRA money, why would it be a bad idea?

For high income individuals, any IRA contribution is post tax and nondeductible. So why wouldn't you want to convert to a Roth EVERY year and have your gains grow tax FREE as opposed to tax deferred in a traditional IRA?

Perhaps I am missing something. Help me out
 

cincincyreds

5+ Year Member
May 9, 2010
519
46
Status
Attending Physician
A few things. Fidelity or Vanguard are fine companies with low cost funds. I think fidelity funds are a tad more expensive, but if you already have an account, it may be simpler just to deal with them. There probably is a fee to transfer to Vanguard. I mean for the total index, Vanguard might be 0.05% and fidelity is 0.07%. I mean, they are close so I wouldn't lose sleep over that.

As far as if traditional ira is better than roth ira, the answer is like on your oral boards. It depends. If you think your tax rate will be less when you are retired, I would choose the traditional ira. If you think the taxes will be higher when you are retired, I would do the roth ira conversion. It is not a big deal to do, just open up a nondeductible traditional ira with fidelity. then the next day, so you want to do a roth ira conversion for the year you are in.

Whitecoatinvestor.com I believe has a section on all of this.

I've personally been doing the roth ira option. The other thing I like about roth ira's is there is no mandatory withdrawal when I'm 59 and a 1/2, so I can let me the money grow tax free for a bunch more years.
 

pgg

Laugh at me, will they?
Administrator
10+ Year Member
Dec 15, 2005
12,159
8,188
Home Again
Status
Attending Physician
Assuming you max out any pre-tax space first (401k, SEP-IRA, etc) first, which you should.

And understanding that I'm not a tax lawyer.

If you're going to save additional money in a post-tax nondeductable IRA, I think the only reason NOT to convert it to Roth each year is if you have other traditional IRA assets and would get stuck by the pro rata rule. Lots of mid- and late- career anesthesiologists have large traditional pretax IRAs already and the pro-rata rule kills any advantage to converting a post-tax IRA every year.

Eg, if you've got $180K in a traditional IRA from years past, and then open a nondeductable IRA with $20K and convert it this year, that would be considered a 10% rollover ($20K of $200K total across ALL accounts.) So 10% of the $180K would be considered rolled over, and you'd owe tax on $18K of your $20K conversion.

But no, as I understand it you're right, if you have no pretax IRA funds, there's no reason not to convert posttax IRA contributions to Roth every year. Until Congress closes the backdoor option, anyway.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
Still confused.

Cincy. Why does it matter what tax bracket I am in when I retire?

Again my contributions will not be taxed as they are post tax and nondeductible. The only thing that could be taxed are the gains.

Regardless of what tax bracket I am in when I retire (the highest or the lowest), if every year I converted my contribution to a Roth my gains are tax FREE, correct?

So when I am 60 and it's time to withdraw from my backdoor Roth, I just pull the my distributions out tax free, right? It shouldn't matter if I am still making bank in the OR or sitting on my butt. Am I wrong here?

If I have a traditional IRA, then yes my gains would be taxed when I am 60 and it's distribution time. And yes my tax bracket would come into play at that time.

This is not so with the Roth as far I can tell. I am new at this, so I may be wrong. But if I can't deduct my IRA contribution, why wouldn't I want my gains to grow tax free as opposed to tax deferred?
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
Assuming you max out any pre-tax space first (401k, SEP-IRA, etc) first, which you should.

And understanding that I'm not a tax lawyer.

If you're going to save additional money in a post-tax nondeductable IRA, I think the only reason NOT to convert it to Roth each year is if you have other traditional IRA assets and would get stuck by the pro rata rule. Lots of mid- and late- career anesthesiologists have large traditional pretax IRAs already and the pro-rata rule kills any advantage to converting a post-tax IRA every year.

Eg, if you've got $180K in a traditional IRA from years past, and then open a nondeductable IRA with $20K and convert it this year, that would be considered a 10% rollover ($20K of $200K total across ALL accounts.) So 10% of the $180K would be considered rolled over, and you'd owe tax on $18K of your $20K conversion.

But no, as I understand it you're right, if you have no pretax IRA funds, there's no reason not to convert posttax IRA contributions to Roth every year. Until Congress closes the backdoor option, anyway.
Thank you, pgg.

This is how I saw things. In 2010 Congress eliminated restrictions on the Roth conversions.

There are still income restrictions to contributions, but in 2010 Congress said anyone can convert to a Roth regardless of income.

The problem is exactly what you are saying. If one had saved a ton in a traditional IRA, all of that would be considered taxable in a conversion. The pro rata rule.

BUT...if you have minimal or NO money in an IRA, it would seem that high income earners who are contributing to an IRA should convert it immediately to a Roth to have gains grow tax free as opposed to tax deferred. The tax bracket you think you will be in upon retirement should not come into play in that decision.

Again this is what I have gathered from reading on the sites referenced and talking with others. If I am missing something here, let me know, because I am still learning.
 

Southpaw

Lifetime Donor
15+ Year Member
Aug 12, 2004
1,165
663
Status
Attending Physician
This seems like as good as thread as any to ask guys like pgg and doze, and others, a question I've had on my mind. I'm fresh out of residency with a stay-at-home wife and have been doing monthly automatic contributions to traditional IRAs (one in her name, one in mine). I can't backdoor those contributions to a Roth IRA can I? We also have small amounts of money in our accounts in traditional IRAs and she has a small amount in a rollover IRA (rolled from prior 401k). What's the easiest way to do the backdoor Roth IRA for us?
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
Still confused.

Cincy. Why does it matter what tax bracket I am in when I retire?
You are going to pay taxes on an existing traditional IRA either at your current marginal tax rate (if you convert it to a Roth) or at your future marginal tax rate when you take distributions (if you leave the money in a traditional ira or roll over into a 401k). You will have more after tax money if you pay your taxes when you are in a lower tax bracket. You will probably have much lower taxable income in retirement, so you should have a lower tax rate later on. It all depends on how much taxes will go up in the future.

Your income tax rate in retirement is irrelevant with a new traditional ira and free Roth conversion since you will pay income taxes this year on that money and don't qualify for a deduction on the traditional ira.
 
Last edited:

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
This seems like as good as thread as any to ask guys like pgg and doze, and others, a question I've had on my mind. I'm fresh out of residency with a stay-at-home wife and have been doing monthly automatic contributions to traditional IRAs (one in her name, one in mine). I can't backdoor those contributions to a Roth IRA can I? We also have small amounts of money in our accounts in traditional IRAs and she has a small amount in a rollover IRA (rolled from prior 401k). What's the easiest way to do the backdoor Roth IRA for us?
For a Roth conversion you have to convert all the money you have in traditional iras if you want to convert any money to a Roth. If you have an existing traditional ira that you took a tax deduction on you can either pay the taxes to convert to a Roth or clear out the ira by rolling it over into another plan (401k etc), thereby clearing the traditional ira account and allowing for free Roth conversions in the future.
Doing a free Roth conversion is easy. I transfer $5500 to a money market account in my traditional ira and in 2 days or so when the money clears, I transfer it to my Roth account. With Vanguard, I can't transfer the money from the traditional IRA to a Roth online. I have to call and do it on the phone. It seems like they are required to read you a long statement about your taxes being owed before they'll do the conversion. I don't know if it's the law and everyone does that or if it's just a Vanguard thing, but in 5-10 minutes it's done. Nothing to it really.
 
Last edited:
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
You are going to pay taxes on a traditional IRA either at your current marginal tax rate (if you convert it to a Roth) or at your future marginal tax rate when you take distributions (if you leave the money in a traditional ira or roll over into a 401k). You will have more after tax money if you pay your taxes when you are in a lower tax bracket. You will probably have much lower taxable income in retirement, so you should have a lower tax rate later on. It all depends on how much taxes will go up in the future.

Your income tax rate in retirement is irrelevant if you are thinking of doing backdoor free Roth conversions today since you will pay income taxes this year on that money and don't qualify for a deduction on the traditional ira.
I would only pay taxes on the GAINS in a traditional IRA upon a Roth conversion. (This is for nondeductible contributions to a traditional IRA as the contribution is post tax).

If I convert right after I contribute, there are minimal to no gains. So essentially no tax. After that the gains are tax FREE! So at no pint did you really pay tax on the gains in your IRA if you do the yearly conversion. Contributing to a traditional, you will have to pay tax on the gains when you receive distributions.

Ex: 2 docs graduate residency. They each make 500,000/yr for rest of life. They have never before contributed to IRA's. For 30 years until they are 60 years old they each contribute the yearly max to their IRA. Since they each exceed the AGI for Roth contribution, they have to put into a traditional IRA. They also cannot deduct their contributions, because of the high AGI. So their contributions are post tax and will never be taxed again. They each select the same investments.

Doc A contributes each year to a traditional IRA and leaves it. Doc B contributes each year to a traditional IRA and immediately converts his contribution to a Roth. Yes, he has to pay tax at his current tax rate on any gains from the contribution in the conversion. However, since the conversion was immediate, there were no gains on the contribution, and Doc B has essentially contributed directly to a Roth IRA.

At age 60 Doc A and B each have made a nice $100,000 in gains in their accounts and are ready for distributions. Doc A's gains will be taxed at his tax bracket at age 60. Whether he be at 5%, 10%, 20%, or 40%, that $100K in gains will be taxed because he owns a traditional IRA. Doc B's $100,000 in gains will not be taxed at all because he owns a Roth IRA where gains are TAX FREE.

This is how I understand how things are with the current system in place. Is this correct?

The only reason you wouldn't convert it appears to be exactly what pgg said. If you already had a good chunk in a traditional IRA.

I do not think the argument of "at retirement you will be at lower tax bracket" is reasonable to fund a traditional IRA if you are a high income earner and have never contributed. If you convert yearly, your gains will be taxed in the ZERO tax bracket
 

pgg

Laugh at me, will they?
Administrator
10+ Year Member
Dec 15, 2005
12,159
8,188
Home Again
Status
Attending Physician
I do not think the argument of "at retirement you will be at lower tax bracket" is reasonable to fund a traditional IRA if you are a high income earner and have never contributed. If you convert yearly, your gains will be taxed in the ZERO tax bracket
Funding of a pretax IRA by high earners usually makes sense because it reduces their current year tax liability (which can be as high as 39.6% federal).

Contributing to a nondeductable IRA and converting to a Roth immediately still requires payment of current year (up to 39.6%) taxes on those funds.

As I understand it, unless something weird or esoteric is going on, the only time it makes sense for a current high earner to contribute to a nondeductable IRA and convert it (a "backdoor Roth") is if they've already maxed out every non-IRA pretax savings vehicle available that year (like a 401k).

For those of us who are 1099 workers, there is another problem going forward year to year, because if you're putting 25% (or max $51K) of your 1099 earnings into a SEP-IRA (pretax), which is almost always going to be a good idea, then future Roth conversions (backdoor or not) will run afoul of the pro rata rule. And if you have to choose between the pretax SEP-IRA or a posttax backdoor Roth, I think the SEP is the clear winner.
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
You don't pay taxes on the GAINS. If you contributed to an ira in the past and took a tax deduction when you're income was lower, then you'd pay taxes on the entire amount if you do a roth conversion. If you do a backdoor roth today, then there are no gains to tax since you shouldn't bother investing the money while it is briefly in the traditional ira. There's no reason to leave the money in the traditional ira for any longer than the processing time on the deposit and conversion.
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
US-Tax-Rate-History-1024x540.png


This is why I favor paying the taxes now and converting an old traditional IRA to a Roth. Our top tax rate is historically low and I'm betting it doesn't stay that way forever. Even if it goes up for several years then back down, those several years will give a chance to profit from the Roth conversion.
I can't find a chart for the second and third highest tax rates.
 
Last edited:

SexPanther

This could be a problem
10+ Year Member
Feb 5, 2006
447
1
Status
Fellow [Any Field]
For a Roth conversion you have to convert all the money you have in traditional iras if you want to convert any money to a Roth. If you have an existing traditional ira that you took a tax deduction on you can either pay the taxes to convert to a Roth or clear out the ira by rolling it over into another plan (401k etc), thereby clearing the traditional ira account and allowing for free Roth conversions in the future.
Doing a free Roth conversion is easy. I transfer $5500 to a money market account in my traditional ira and in 2 days or so when the money clears, I transfer it to my Roth account. With Vanguard, I can't transfer the money from the traditional IRA to a Roth online. I have to call and do it on the phone. It seems like they are required to read you a long statement about your taxes being owed before they'll do the conversion. I don't know if it's the law and everyone does that or if it's just a Vanguard thing, but in 5-10 minutes it's done. Nothing to it really.
Weird, I do my tIRA to Roth conversion on Vanguards website - no hassle or issues at all.
 

ssmallz

California Dreamin
10+ Year Member
Sep 25, 2008
667
67
38
SoCal
Status
Fellow [Any Field]
This is why I favor paying the taxes now and converting an old traditional IRA to a Roth. Our top tax rate is historically low and I'm betting it doesn't stay that way forever. Even if it goes up for several years then back down, those several years will give a chance to profit from the Roth conversion.
I can't find a chart for the second and third highest tax rates.
Don't forget about the progressive nature of taxes. When you take the deduction for a sep IRA, it comes off the top of your income, income that would be taxed at 39% + whatever percent you pay in state taxes. When you take the money out, you're not taxed at the top tax rate until you exceed the lower rates first. Your first 15k will be untaxed, then the next 35k will be taxed at some low rate and it will progress higher until you hit somewhere around 250k when you're back to the top tax bracket. So.... you're really betting that the lower tax rates will go up to the point where the top tax rates are now when you plan to take your money out.
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
Don't forget about the progressive nature of taxes. When you take the deduction for a sep IRA, it comes off the top of your income, income that would be taxed at 39% + whatever percent you pay in state taxes. When you take the money out, you're not taxed at the top tax rate until you exceed the lower rates first. Your first 15k will be untaxed, then the next 35k will be taxed at some low rate and it will progress higher until you hit somewhere around 250k when you're back to the top tax bracket. So.... you're really betting that the lower tax rates will go up to the point where the top tax rates are now when you plan to take your money out.
That's a good point. I expect to pay the 28%(?) AMT and to take an upper middle class level of distributions each year, but your point could change the math for a lot of people.
 

ssmallz

California Dreamin
10+ Year Member
Sep 25, 2008
667
67
38
SoCal
Status
Fellow [Any Field]
That's a good point. I expect to pay the 28% AMT and to take an upper middle class level of distributions each year, but your point could change the math for a lot of people.
The math will work out even better if you live in a high tax state now but plan on retiring to a tax free state like Florida........then you can make an easy 10%.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
Funding of a pretax IRA by high earners usually makes sense because it reduces their current year tax liability (which can be as high as 39.6% federal).


quote]

I agree with this pgg. However, after a certain income like >200K, I don't think one can contribute to a pretax IRA, can you? Maybe the SEP-IRA if that is what you are talking about. But if that is the case, isn't that through your employment?

If you are a high earner, you do not qualify to contribute to a Roth at all, and your income would not allow you to deduct a contribution to a traditional IRA and reduce your taxable income. This is what I understand regarding traditional and Roth for high earners. Maybe the SEP-IRA is a different story, but there is not one at my employment.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
View attachment 177075


This is why I favor paying the taxes now and converting an old traditional IRA to a Roth. Our top tax rate is historically low and I'm betting it doesn't stay that way forever. Even if it goes up for several years then back down, those several years will give a chance to profit from the Roth conversion.
I can't find a chart for the second and third highest tax rates.

OK, I see your point GypsySongman, and I can see the reasoning. The only IRA money I had was about 5500 dollars, which would have been about 2000 in tax if I had converted it now. Not sure how much of that will be taxed 25 years from now by putting it in a tax deferred plan, but I can't believe I would be burned too bad. Also, perhaps I didn't want to cough up an extra 2K this year considering I spent the last two years saving dilligently to write a big fat check for my student debt. Perhaps I just felt like coughing up 2K now to maybe try and save/make a little bit more later wasn't worth it at this time.
 

pgg

Laugh at me, will they?
Administrator
10+ Year Member
Dec 15, 2005
12,159
8,188
Home Again
Status
Attending Physician
This is why I favor paying the taxes now and converting an old traditional IRA to a Roth. Our top tax rate is historically low and I'm betting it doesn't stay that way forever. Even if it goes up for several years then back down, those several years will give a chance to profit from the Roth conversion.
I can't find a chart for the second and third highest tax rates.
You're probably right, that taxes will trend up in the future. But something to keep in mind when looking at that graph is that those super high marginal rates of yesteryear (like the 90% in the early 1960s) didn't kick in at middle class income levels. These days, the top marginal rate is for income over $450K for married filing jointly. $450K is a lot of money but it's not filthy rich. That 91% rate in 1962 was on earned income over $200K (or about $2.5 million in today's dollars).

Anything's possible, but I don't think we're likely to see 60%+ tax brackets for income in the $200-300K-ish region, which is on the upper end of what even an aggressively saving anesthesiologist is going to get out of a 4-5% SWR portfolio at retirement.
 

pgg

Laugh at me, will they?
Administrator
10+ Year Member
Dec 15, 2005
12,159
8,188
Home Again
Status
Attending Physician
I agree with this pgg. However, after a certain income like >200K, I don't think one can contribute to a pretax IRA, can you? Maybe the SEP-IRA if that is what you are talking about. But if that is the case, isn't that through your employment?
The SEP-IRA is a pretax IRA that has no income limit. You can contribute up to 25% of 1099 earnings to a cap of $51,000/year. If you get paid via W-2 there should probably be some other employer sponsored pretax savings vehicle available like a 401k which should probably be maximized before using a nondeductable IRA that gets converted to a Roth annually.

I think that if one does not participate in a pretax retirement plan at work there isn't an income limit for traditional IRAs. Google led me here. It's not much of a benefit though as you're capped at only $5500 in contributions per person per year.
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
The SEP-IRA is a pretax IRA that has no income limit. You can contribute up to 25% of 1099 earnings to a cap of $51,000/year. If you get paid via W-2 there should probably be some other employer sponsored pretax savings vehicle available like a 401k which should probably be maximized before using a nondeductable IRA that gets converted to a Roth annually.

I think that if one does not participate in a pretax retirement plan at work there isn't an income limit for traditional IRAs. Google led me here. It's not much of a benefit though as you're capped at only $5500 in contributions per person per year.
My hospital has a 457b where you can contribute 17500 of pretax money.

They also have a 403b where you can contribute 50,000 of pretax money.

I contribute fully to the 457b. I don't contribute to the 403b but will when I renew my contract in September. Apparently you can only enroll into this one upon starting or renewing contract, and I didn't want to contribute that much so early after residency because I had debts to pay.

Is this 403b considered an SEP-IRA??? If so, I may need to rethink my strategy. Would money in an SEP-IRA be subject to the prorata rule on a Roth conversion?
 
OP
excalibur

excalibur

Member
10+ Year Member
Oct 15, 2005
655
7
Status
Attending Physician
My hospital has a 457b where you can contribute 17500 of pretax money.

They also have a 403b where you can contribute 50,000 of pretax money.

I contribute fully to the 457b. I don't contribute to the 403b but will when I renew my contract in September. Apparently you can only enroll into this one upon starting or renewing contract, and I didn't want to contribute that much so early after residency because I had debts to pay.

Is this 403b considered an SEP-IRA??? If so, I may need to rethink my strategy. Would money in an SEP-IRA be subject to the prorata rule on a Roth conversion?
Correction. My HR states that the retirement plan where I can contribute 52,000 dollars per year is a 401(a), not a 403b. Sorry.

Will still need to see if this is considered an SEP-IRA
 

Idiopathic

Newly Minted
Lifetime Donor
15+ Year Member
Apr 21, 2003
8,362
18
Here
Visit site
Status
Attending Physician
can i do anything if i have a 403b at work that maxes out at 16500 pretax? id love to contribute more but since i have a plan at work, it doesnt look like that is an option. any advice?

i.e. why can others do 51K a year pretax?
 

Idiopathic

Newly Minted
Lifetime Donor
15+ Year Member
Apr 21, 2003
8,362
18
Here
Visit site
Status
Attending Physician
so i guess i understand that since im a w2 employee i cant contribute more pretax. thats fine, so the consensus is that i should contribute to a traditional IRA (which would be post tax) and then convert it to a Roth after the new year? and then i just do this yearly from here on?
 

countingdays

ASA Member
5+ Year Member
May 16, 2009
1,147
33
Status
Attending Physician
so i guess i understand that since im a w2 employee i cant contribute more pretax. thats fine, so the consensus is that i should contribute to a traditional IRA (which would be post tax) and then convert it to a Roth after the new year? and then i just do this yearly from here on?
You can do it yearly until they shut it down. I mean, the put in a pretty low income phase out for a Roth, so it seems like this loophole won't last. So far so good though.

You can go over 17500 with employer matching and profit sharing.
 

Arch Guillotti

Senior Member
Staff member
Administrator
Lifetime Donor
15+ Year Member
Aug 8, 2001
7,685
1,461
Status
Attending Physician
can i do anything if i have a 403b at work that maxes out at 16500 pretax? id love to contribute more but since i have a plan at work, it doesnt look like that is an option. any advice?

i.e. why can others do 51K a year pretax?
The limit is actually 17500 for 2013 and 2014.

51K (52k next year) comes from employer match/profit sharing.
 

pjl

ASA Member
10+ Year Member
Oct 29, 2006
909
498
Status
Attending Physician
~50k 401k plus 20k roth backdoor = no brainer for me. Don't forget you can do roth backdoor for your stay at home spouse too.
Mine is at vanguard, I do website, buddy did phone, both were minimal work. Probably first time on phone makes sense because you can ask questions.

The question to ask yourself is whether or not to do roth 401k. I think most would say no, but I know a bunch of partners do 50:50.
 

pjl

ASA Member
10+ Year Member
Oct 29, 2006
909
498
Status
Attending Physician
You can't, unless they made polygamy legal.
Sorry, misspoke/typed. Last year i did in march but that was from 2012 and 2013 combined, which was when I realized I should be doing this.
 

Silent Cool

Member
Removed
10+ Year Member
Jan 30, 2005
2,772
654
Status
How do you do a 20K backdoor Roth?
Arch,

You can "backdoor" money into a Roth IRA (more than 20K) by converting a 401K or a Traditional IRA to a Roth. You simply have to pay the conversion taxes upfront.
 

Silent Cool

Member
Removed
10+ Year Member
Jan 30, 2005
2,772
654
Status
OK. I am in the process of establishing a Backdoor Roth IRA.

First question. How many attendings out there contribute to a Backdoor Roth IRA every year?
--I am just curious

I had a very very small Traditional IRA with Fidelity. In order to avoid the pro rata rule and getting that money taxed in a Roth conversion, I am in the process of rolling that money into my employer based 457b.

Once that money is in my employer based 457b retirement account, I will have no money in IRA's, and I can contribute yearly to traditional IRA's and immeidately convert them to Roth IRA's.

Second question. Should I go with Fidelity or Vanguard for my Backdoor Roth IRA's?
--My traditional IRA that I liquidated was with Fidelity. I have a taxable account with Vanguard.

Third question and more. Does Fidelity actually charge $50 to close an account?? Does this mean that if I contribute to a traditional IRA every year and immediately convert it to a Roth, am I going to get charged $50 by Fidelity because I closed the traditional IRA I just opened? Does Vanguard have fees to close accounts? Does it cost me in the form of fees to do a Backdoor Roth on Vanguard? --I already know I will have to pay tax on any amount the contribution increased from the time period of contribution to conversion. I undedrstand that the amount it would have increased is probably very little, as you should be prepared to convert as soon as the contribution posts online, which is about a few days.

Any thoughts on this matter or answers to these quesitions or insight that I might be missing is greatly appreciated.
Vanguard.
 
Jul 1, 2012
36
9
Status
Attending Physician
I wanted to add a question to this...if I put money into a traditional IRA and do a backdoor rollover for my wife so we have money in both traditional and roth IRAs do my traditional IRA funds get evaluated when doing her rollover? The basic question is does the money I have in my traditional play into getting taxed on her rollover?
 

FFP

Wiseguy
Gold Donor
10+ Year Member
Oct 17, 2007
7,231
7,317
Status
Attending Physician
Nope.
 

aneftp

7+ Year Member
Mar 23, 2010
1,868
728
Status
Attending Physician
I dunno. But I tend to be a pessimist about things (with taxes). Somewhere in the future, the feds can do whatever they want to do.

They could change the tax code and start assessing "fees" for "roth IRA withdrawls over say $100K a year"

Just my thoughts.

The feds will and can do anything to the tax code. Don't think your Roth (post tax) money is completely safe from the IRS in 20-30 years.

The Feds change the way medicare premiums are paid by "wealthier" people making more tha 150K a year I think.

So there is no guarantee they won't mess with Roth IRA withdrawls either. They can simple assess a "fee" like I say that won't be considered a "tax" for X amount over a limit they determine.
 

Arch Guillotti

Senior Member
Staff member
Administrator
Lifetime Donor
15+ Year Member
Aug 8, 2001
7,685
1,461
Status
Attending Physician
I wanted to add a question to this...if I put money into a traditional IRA and do a backdoor rollover for my wife so we have money in both traditional and roth IRAs do my traditional IRA funds get evaluated when doing her rollover? The basic question is does the money I have in my traditional play into getting taxed on her rollover?
I am not so sure about this. I contribute money to a traditional IRA that has a zero balance with Vanguard then I roll it over to the Roth. I suggest checking with an accountant.