Backdoor Roth

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btbam said:
I think you actually "exchange" the funds from the traditional IRA into the Roth. It's not super straightforward on their website, but I've always found their phone reps very helpful.
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It's never taken me more than 3 minutes on the website without calling them. Pretty sure you log in to the Roth account and then choose your contribution and when it asks where the money comes from you choose that you will fund it from the money you already put in the traditional IRA, I guess by exchanging it. Pretty simple IMHO, though I will say the Vanguard website itself is kinda clunky in regards to user interface.
 
Mman said:
It's never taken me more than 3 minutes on the website without calling them. Pretty sure you log in to the Roth account and then choose your contribution and when it asks where the money comes from you choose that you will fund it from the money you already put in the traditional IRA, I guess by exchanging it. Pretty simple IMHO, though I will say the Vanguard website itself is kinda clunky in regards to user interface.
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I have a lot of money in my Traditional.
I am confused about transferring the money to the Roth. Do I just transfer $5500 and pay the capital gains? Or will that not be needed since I'm not withdrawing the funds? I was under the impression that I would have to pay taxes on those gains.
 
Noyac said:
I have a lot of money in my Traditional.
I am confused about transferring the money to the Roth. Do I just transfer $5500 and pay the capital gains? Or will that not be needed since I'm not withdrawing the funds? I was under the impression that I would have to pay taxes on those gains.
Click to expand...

You guys are talking about two different things.


Sent from my iPad using SDN mobile app
 
Three options if you want to do a back door Roth...

1) Transfer your traditional IRA into your 401k, if it allows

2) Otherwise, do the back door Roth without doing anything to the Traditional IRA. This method will require you to pay taxes via the Pro-Rata rule

3) Pay the taxes and try to convert all of your traditional to Roth. No help this year, but helps for future years.

Hence, option 1 is more desirable. Option 3 may work in years when you have a low income tax bracket (I.e. Sabbatical, military service, etc)
 
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Noyac said:
I have a lot of money in my Traditional.
I am confused about transferring the money to the Roth. Do I just transfer $5500 and pay the capital gains? Or will that not be needed since I'm not withdrawing the funds? I was under the impression that I would have to pay taxes on those gains.
Click to expand...

If you contribute $550o to a traditional and then quickly transfer that same $5500 to a Roth, there are no capital gains to pay tax on.
 
Mman said:
If you contribute $550o to a traditional and then quickly transfer that same $5500 to a Roth, there are no capital gains to pay tax on.
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Yes, I am aware of this. But I need to transfer the funds that are in there right now. I will transfer that to my 401k.
Then I will be starting at zero in the Traditional. And it will remain zero most of the year.
 
Noyac said:
Yes, I am aware of this. But I need to transfer the funds that are in there right now. I will transfer that to my 401k.
Then I will be starting at zero in the Traditional. And it will remain zero most of the year.
Click to expand...

So the issue with the funds in there right now is complicated on what to do with them. If you want to move them to a Roth, than yes you have to pay Cap gains tax on it. Whether or not you should or just leave them in a traditional is a complicated question and it depends on your personal situation.
 
Timeoutofmind said:
For most people earning in our range...saving pretax>saving post tax (cuz we will likely retire in a lower tax bracket).
I don't understand all the drama.
It's not like there is some senario where u can save both pre and post tax on the same dollars...
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A Health Savings Account (HSA) is the holy grail of tax deferred savings. It is the only investment vehicle with
(1) tax deductible contributions
(2) tax free growth
(3) tax free withdrawals (has to be health related expenses, a pretty broad category)
If only the contribution limits weren't so damn small (~$7,000 per family per year).
 
sazerac said:
A Health Savings Account (HSA) is the holy grail of tax deferred savings. It is the only investment vehicle with
(1) tax deductible contributions
(2) tax free growth
(3) tax free withdrawals (has to be health related expenses, a pretty broad category)
If only the contribution limits weren't so damn small (~$7,000 per family per year).
Click to expand...

AND you can hold onto healthcare receipts indefinitely, allowing for decades of tax free growth, or, after age 59, treat it like another 401k.
 
Mman said:
So the issue with the funds in there right now is complicated on what to do with them. If you want to move them to a Roth, than yes you have to pay Cap gains tax on it. Whether or not you should or just leave them in a traditional is a complicated question and it depends on your personal situation.
Click to expand...
But moving them to a 401k won't have cap gains implications, right?
 
Noyac said:
But moving them to a 401k won't have cap gains implications, right?
Click to expand...

Not sure. It doesn't seem like it should but I plead total ignorance on the topic. I'm only a self taught expert at annual backdoor Roth contributions.
 
Mman said:
Not sure. It doesn't seem like it should but I plead total ignorance on the topic. I'm only a self taught expert at annual backdoor Roth contributions.
Click to expand...
Just one more question.

Can someone be self taught and also an "expert"? 😉
 
Noyac said:
But moving them to a 401k won't have cap gains implications, right?
Click to expand...
Moving money back and forth between a traditional IRA and a traditional 401k is not a taxable event. The money retains whatever tax status (often a mix of pre and post tax dollars) it had in the previous account.

Only the act of moving it to a Roth IRA or Roth 401k is a taxable event. You would then have to pay tax on the pre tax dollars (but not the post tax dollars).
 
sazerac said:
A Health Savings Account (HSA) is the holy grail of tax deferred savings. It is the only investment vehicle with
(1) tax deductible contributions
(2) tax free growth
(3) tax free withdrawals (has to be health related expenses, a pretty broad category)
If only the contribution limits weren't so damn small (~$7,000 per family per year).
Click to expand...

Yes HSA are great. I have had them since 2006 when I was still Single.

However the ACA was rigged to make HSA very unappealing. Because Dems who wrote the ACA knew the HSA was potentially a tax haven escape for the well off and healthy. So the ACA makes it harder and even more expensive than ever

http://www.forbes.com/sites/gracema...r-attack-in-obamacare-exchanges/#6077f671ceb4
 
I never said I was an expert in anything. That was @Mman. 😉

And feel free to do the emoticon action in real life, too, if I say/do something stupid.
 
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Noyac said:
Thanks. But we have all read this. It's basically what started this thread.
Click to expand...

If you read ALL the stuff on White Coat Investor and Finance Buff and other sites about Roth IRAs, Trad IRAs, conversions, pro rata, etc, and you still have 10+ posts worth of questions, what makes you think you're gonna get answers here? As opposed to, y'know, an accountant, investment advisor, or tax guy?
 
Sidenote: my two cents on Backdoor Roth IRA. It is VERY easy to do if you're starting with a clean slate, i.e.,
a) you only have one Trad IRA and it has either NO money in it, or has money in it and it's all EITHER pretax or posttax
b) you are making your $5500 contributions FOR a year and converting IN that same year

But if you don't have this clean slate, it gets really complicated and you'll wanna make sure every step you have planned is OK and going to have the tax consequences you expect before you start the first step.
 
For 2016, we have until tax day in 2017 to make the contribution and do the conversion correct? Due to some semantics it looks like my contribution won't be available until after the new year.
 
Question: if contributing directly to a traditional IRA from a checking account (post-tax) and then rolling that into a ROTH IRA, will I be taxed a second time during the rollover process?
 
Dawkter said:
Question: if contributing directly to a traditional IRA from a checking account (post-tax) and then rolling that into a ROTH IRA, will I be taxed a second time during the rollover process?
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no. I do it that way every January. Make a deposit to my Vanguard tIRA and then I wait a day or two and convert it to my Roth IRA.

edit: worth noting that Vanguard does give a warning that "this is a taxable event" when you do it. But since I cannot deduct the contribution to the traditional IRA and there are no gains in it, there is nothing to actually pay tax on. It's effectively post-tax dollars being put into a Roth.
 
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Mman said:
no. I do it that way every January. Make a deposit to my Vanguard tIRA and then I wait a day or two and convert it to my Roth IRA.
Click to expand...

Excellent, thank you!
 
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