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Backdoor Roth with inherited traditional IRA plus multiple retirement accounts

Home Retirement Accounts Backdoor Roth with inherited traditional IRA plus multiple retirement accounts

  • Avatar BrianMD 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/24/2019

    Hello WCI community,

    First time posting, so really appreciate your feedback!  I’ve been trying to get myself up to an acceptable level of financial literacy and have recently read the WCI book and taken the FYFA course.  My main question is that I currently have an inherited traditional IRA in addition to my employee retirement accounts.  I’ve been reading about the backdoor Roth IRA and am curious.. is an inherited IRA subject to pro rata taxes if I do a backdoor Roth conversion?  I haven’t been able to find a clear answer online thus far.  I have no additional IRAs other than a small rollover IRA from a previous job in college.

    My second question is in regards to managing my multiple employee retirement accounts.  At my main job I have a 403b and 457b which I’ve been maxing out with the $18,500 per year contributions and getting my minimal employer match.  I recently started a moonlighting gig and now have access to an additional 401k.  I’m a W2 at the moonlighting gig, but quickly learned that I can still only contribute a combined $18,500 between the 403b and 401k.  I’m curious if anyone has been in a similar boat and has any tips on whether I can qualify or reclassify my moonlighting as self-employment in order to open an individual 401K and be able to get closer to the coveted $55,0000 contribution limit.

    Thanks for the help and appreciate you taking the time to read this!

    Ryan

    #241112 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1903
    Joined: 02/01/2016

    All your owned pre-tax traditional, SEP and SIMPLE IRA accounts have a combined single pre-tax and non-deductible basis and one Form 8606 if required. Each Inherited IRA has its own combined single pre-tax and non-deductible basis and one Form 8606 if required. Inherited traditional IRAs with basis are not common, but require their own Form 8606. The bottom line is that Inherited IRAs in no way interfere with a Backdoor Roth of owned accounts.

    A W-2 employee has no ability to change their classification to independent contractor. There are very specific rules on whether an employer can classify an individual as an independent contractor (IC).  However, many professionals including doctors (except in CA) can reasonably be structured by an employer as an IC. This requires particular consideration of the categories of; Behavioral Control, Financial Control and Relationship of the Parties and contractual requirements.

    Some employers may be willing to change your classification, but you have to have the right facts and circumstances of your engagement. Most employers are not going to risk the IRS’ wrath unless there is a clear dividing line. An additional caveat, the final section 199A regulations generally do not allow a former employee turned IC to be eligible for the QBI deduction. The flip side is that in this provision the IRS has indicated that there are facts and circumstances that allow a W-2 employee to be reclassified as an IC.

    #241121 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016
    1. No, an inherited TIRA does not impact the backdoor Roth rules.
    2. You can contribute $19k as an employee in 2019 and the contribution limit is $56k. Whether you can reclassify to 1099 is up to the organization that pays you. You can not personally choose to change the character of income you have been paid. Doubtful the organization will change retrospectively, but you may be able to convince them to make that adjustment prospectively. Will involve a new contract and any other related documents.
      • The 403b calculation limits the aggregate contributions to your 403b/solo-k (if applicable) to a total of $56k in 2019.

    Welcome to the forum!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #241122 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016
    However, many professionals including doctors (except in CA) can reasonably be structured by an employer as an independent contractor.

    Click to expand…

    Small clarification – doctors can practice as IC’s in CA, just not as LLCs. Some payor organizations (notably Team Health) do refuse to do business with doctors operating as sole-proprietors and insist that the doctor form and file as an s-corp (as a result of the 2018 CA Supreme Court Dynamex decision). This is unfortunate but understandable.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #241126 Reply
    Liked by spiritrider
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4405
    Joined: 01/08/2016

    Rule of thumb, always check bogleheads wiki.
    Your answer is on the page for backdoor Roth.

    #241135 Reply
    Avatar BrianMD 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/24/2019

    Thanks so much, everyone!  Super helpful.

    #241146 Reply

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