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PSA: Don't miss out on your 2018 backdoor Roth!

Home Retirement Accounts PSA: Don't miss out on your 2018 backdoor Roth!

  • jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016

    So I’ve been reaching out to clients for 3 days now reminding them that they have only a few days to get their 2018 IRA contributions in and decided to give a shout out of encouragement to the peeps here. YOU HAVE 1 WEEK TO CONTRIBUTE TO A…

    • TIRA if doing a backdoor Roth
    • Roth (directly) if in residency/fellowship (in general)

    If you are on the fence about a backdoor Roth, maybe you can afford to contribute but also have a pre-tax IRA and you’ve been scared out of it by the pro-rata rule, take heart. Your situation does not preclude you frorm taking step 1. You have until 12/31/19 to move that TIRA to:

    • your work account,
    • a solo-k or
    • convert to a Roth.

    If the above are not options but may be in the next year or two, then contribute to your TIRA (you’ll never get this year’s availability back) and wait until next year to convert. You’ll still avoid the pro-rate rule!

    Not sure of yourself? Post your question here or search for “backdoor Roth” on this forum.

    Afraid it’s too late to get a check deposited with your broker? Then do it the old-fashioned way: head to your local (brick-and-mortar) bank, set up an IRA, and write a check for $5,500 to it before 4-15. Next, roll it to the IRA you would have opened if you had had time, on your schedule. (Sorry, brick-and-mortar bank 🙁 )

    Just do it, even if you can’t afford any more than $1,000 to start. Your older, wiser self will thank your younger free-spirited self some day.

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

    Avatar Bmac 
    Participant
    Status: Physician
    Posts: 302
    Joined: 10/21/2017

    To be clear, this only applies to 2018 contributions. Many on this forum likely made those contributions during the first week of January, 2018, not the second week of April 2019. Relax if you have not made your 2019 contributions yet. You still have a year and a week to do so.

    #205079 Reply
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 320
    Joined: 02/22/2016

    2018 IRA—> Backdoor Roth contributions done 1st week of January 2018
    2019 IRA—> Backdoor Roth contributions done 1st week of January 2019

    Happy to be in a position where I can do this during the first week of eligibility.

    #205108 Reply
    Liked by jfoxcpacfp
    Avatar PocketChange 
    Participant
    Status: Resident
    Posts: 11
    Joined: 08/07/2018

    Does this mess up our taxes if we’ve already done them?

    #205113 Reply
    Liked by jfoxcpacfp
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 457
    Joined: 03/26/2018

    no, because you’re using post-taxed dollars to make a non-deductible IRA contribution that you are then converting over to a Roth. you can fill in form 8606 and just send it in separately

    #205120 Reply
    Liked by jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016

    Does this mess up our taxes if we’ve already done them?

    Click to expand…

    Since you’re a resident, you can probably contribute directly to a Roth (assuming you don’t have a high-earning spouse). You’re still good to go, if so – there is no reporting necessary for a direct Roth contribution.

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

    #205124 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016

    To be clear, this only applies to 2018 contributions. Many on this forum likely made those contributions during the first week of January, 2018, not the second week of April 2019. Relax if you have not made your 2019 contributions yet. You still have a year and a week to do so.

    Click to expand…

    haha, I couldn’t see the forest for the trees. Thank you, @bmac – I’ve edited my original post. And you might be surprised how many don’t make their contributions the 1st week of the new year (forum participants excepted).

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

    #205126 Reply
    Avatar PocketChange 
    Participant
    Status: Resident
    Posts: 11
    Joined: 08/07/2018

    Thanks for the info! I am still able to contribute directly to a Roth. I’m just trying to work out the mechanics of it, however, I haven’t taken care of some of the higher-priority recommendations like disability insurance yet.

    #205139 Reply
    Avatar CECRNA 
    Participant
    Status: Advanced Practice Provider
    Posts: 39
    Joined: 02/03/2019

    Made my 2018 Backdoor Roth contribution in Feb 2019 (I know, procrastinator here), made 2019 contribution last week. My CPA insisted it was illegal; that I can’t do two back door Roth conversions in one year. I went against his advice bc I couldn’t convince him he was wrong. I’ve read enough about Roth on this forum to know that his information was inaccurate. I’m hoping I’ll get you guys to help with my 8606 come next tax year…thanks in advance

    #205147 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 457
    Joined: 03/26/2018

    the tutorial WCI has for the backdoor roth includes exactly how to do the 8606 form as well…search for it on the website, not hard to find. and don’t use your CPA again. what is he helping with or educating you on that you don’t already know, since apparently you not only do his homework for him but also need to convince him when you are clearly right?

    #205169 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1217
    Joined: 02/15/2016

    Thanks for the info! I am still able to contribute directly to a Roth. I’m just trying to work out the mechanics of it, however, I haven’t taken care of some of the higher-priority recommendations like disability insurance yet.

    Click to expand…

    It really is quite simple.  If you want to do it for 2018, you really should open the account today.

    Step 1:  Open Roth IRA account wherever you want.  If it’s Vanguard, go here:  https://personal.vanguard.com/open-account/oax/app/triage#/

    Step 2:  Click on open new account

    Step 3:  Fill out application, including bank acct info. to make transfer

    Step 4:  Once the money gets transferred (few business days), invest.

    #205172 Reply
    Avatar NowOpenWide 
    Participant
    Status: Dentist, Small Business Owner, Spouse
    Posts: 1
    Joined: 04/10/2019

    One question for tax experts here, my first one after lurking here for long time 🙂

    I have rollover IRA when I converted my 401k from a previous employer. It is fairly large, all pre-tax money. I also have 11,000 in TIRA that was all contributed after tax. I have 8606 for all those contributions. It is from contributions in 2016 and 2017. I have also contributed for 2018 and now I should have basis in TIRA of 16,500.

    Now if I try to do backdoor, will it cause problem due to pro-rata rule? If I have basis in TIRA and I backdoor convert only the amount matching that basis, does it still follow pro-rata rule and make almost all of that (or over 90% of it) taxable?

    I cannot move that IRA to current 401k as this employer does provide have that ability. So it will stay as Rollover. Frankly that is better since I have lot more options in Fidelity IRA than I have in the employer 401k.

    I hope it is not the case that having setup rollover IRA once, means you can never do backdoor Roth anymore!!!

    Thanks

     

    #205495 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7794
    Joined: 01/09/2016
    Earnest refinancing bonus

    You can do a backdoor Roth, but you will owe pro-rata taxes. All pro-rata taxes do is just make you pay taxes on the pre-tax money that you are going to pay at some point in the future. It’s much better to pay pro-rata taxes than to leave your nondeductible TIRAs in cash or than to invest them and then pay tax on the growth at your marginal tax bracket.

    It’s up to you as to whether you do backdoor Roth’s now and start the taxation of that IRA or just sock away your savings in a taxable account.

    Welcome to the forum!

     

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

    #205553 Reply

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