Announcement

Collapse
No announcement yet.

Non-deductible traditional IRA to Roth conversion

Collapse
X
Collapse
First Prev Next Last
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Non-deductible traditional IRA to Roth conversion

    My wife and I both have traditional IRA accounts with a cost basis of $59k. All of this was non-deductible (post-tax) and recorded on Form 8606 each year. Both accounts have some gains. I'd like to do what's necessary to allow future backdoor Roth IRAs. I *think* I can do the following:

    1. Rollover the gains to our 403b/401k accounts (will verify the plan accepts this type of rollover). No tax here.

    2. Roth conversion of the remainder, which is the non-deductible basis. No tax here either.

    3. $0 left in the traditional IRA at the end of the year. In subsequent years, make the standard backdoor Roth contributions.


    Does that sound about right? Are there scenarios where this isn't worth the effort?

  • #2
    Yup

    Comment


    • #3
      Having an IRA with basis (nondeductible TIRAs) will not impact your backdoor Roth's, tax-wise. However, there is no logical reason to have non-deductible TIRAs with any kind of balance, so you're doing a smart thing by taking the above steps. Just curious - what was the purpose of contributing to them/reporting annually but not going through with the conversion?
      Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

      Comment


      • #4
        You’ve got it. Best of luck.

        Comment


        • #5
          Thanks everyone!

          This only happened because I had no idea what I was doing. I had Roth contributions set up automatically as a resident. When I became an attending and exceeded the income limits, I didn't stop those until too late. I recharacterized to traditional, and then continued to dutifully contribute to that tIRA. I didn't know about backdoor Roth back then, but now realize the error. I'm just glad there's a way to deal with this without major tax consequences.

          One more logistical question - I think it doesn't matter what order this happens in, but it seems easiest to convert the basis first and then rollover the rest?

          Comment


          • #6




            One more logistical question – I think it doesn’t matter what order this happens in, but it seems easiest to convert the basis first and then rollover the rest?
            Click to expand...


            Since you can no longer recharacterize Roth conversions. It is far safer to do the rollover and verify that is has successfully completed. You don't want to be stuck with a pro-rata of a mostly taxable Roth conversion.

            Comment


            • #7







              One more logistical question – I think it doesn’t matter what order this happens in, but it seems easiest to convert the basis first and then rollover the rest?
              Click to expand…


              Since you can no longer recharacterize Roth conversions. It is far safer to do the rollover and verify that is has successfully completed. You don’t want to be stuck with a pro-rata of a mostly taxable Roth conversion.
              Click to expand...


              Ah that makes sense. Thanks!

              Comment

              Working...
              X