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Roth conversion - why did I contribute post-tax money to a tIRA?

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  • Roth conversion - why did I contribute post-tax money to a tIRA?

    Hi all,

    I've just joined WCI and am trying to get my financial life in order.

    About 5 years ago I took my first job out of residency. I was somehow convinced to rollover some of a previous retirement account (~7k) into a tIRA by a financial planner associated with my credit union. I also agreed to contribute a small amount of post-tax money into this account for the past few years. I figured putting away an extra $100 per month would only help down the line and didn't think any more about it. Turns out, I was below the Roth threshold for direct contribution, and could have been putting it directly into the Roth all along. We also did this with my wife's account and her balance is closer to $20k.

    I will soon be moving into a much higher paying job and will be above the direct contribution limit. I would like to start doing the backdoor Roth and get the current tIRA converted before I move into a higher tax bracket. I have a balance in the tIRA of about $12k. We can handle the taxes that will be incurred by converting my account, but probably not both at the same time. My main question is, how do I fill out Form 8606 properly to account for both the pre-tax rollover amount and the last few years of contributions that were post-tax?

    I'm just trying to do better, starting now.

    Thanks.

  • #2
    My main question is, how do I fill out Form 8606 properly to account for both the pre-tax rollover amount and the last few years of contributions that were post-tax?

    a little nomenclature clarification. im assuming you mean by "post tax contribution" to your IRA that you just mean Roth IRA contributions?

    that means there are still 2 accounts: your tIRA (from the rollover) and your rIRA (?post tax contributions).

    when you convert the tIRA, youll be sent a 1099 which you put in form 8606. the rIRA doesnt matter.

     

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    • #3
      Time to fire your advisor from the credit union!

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      • #4
        OK - It's been a while, but to close this circle:

        I contributed to a tIRA - never to a Roth, and didn't appropriately deduct those contributions. That's why they were "post tax". My tax prep person said I had to retrospectively deduct those contributions and then pay taxes on the converted total to the Roth(seemed like an unnecessary complications, but not the worst thing in the end). Now confidently set up to do the backdoor Roth without any tIRA balance remaining.

        Found a decent fee-only advisor that I'm using to set up a plan going forward. Free annual check-ins assuming no major shifts, otherwise 1/4-1/2 rate updates for big changes or additions, none of which I'm expecting anytime soon (new business, big inheritance, etc.).

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