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Question about back door roth

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  • Avatar tripdout0 
    Participant
    Status: Physician
    Posts: 1
    Joined: 03/12/2019

    Hi.

    I have a SEP IRA with about 29K.

    I also have a rollover IRA with about 27K.

    I have a roth IRA, but don’t contribute to it due to my high income level.

    How can I get a backdoor roth IRA account going?

    Appreciate all the help.

    Thanks.

    #197705 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016

    You can get a backdoor Roth account going regardless of your current IRAs. What I think you are asking is how you can avoid paying pro-rata taxes. To properly advise, we’ll need a little more info.

    What is your current employment situation? Is the SEP from your current IC income? Or are you now working as a W2 employee with access to a 401k/403b?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #197759 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3604
    Joined: 01/08/2016
    How can I get a backdoor roth IRA account going?

    Click to expand…

    welcome.

    there are a lot of posts about this, please peruse the forum.

    there are also dedicated forum posts by WCI such as:

    Backdoor Roth IRA Ultimate Guide and Tutorial

    #197765 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 357
    Joined: 06/12/2017

    You can always do a Backdoor Roth. However, I think what you’re asking is can you do so without the SEP IRA and Rollover IRA causing pro-rate taxation issues.

    The way to avoid this would be to see if your current retirement plan allows you to roll these accounts into it. If so, you are able to clear the decks – so to speak – for Backdoor Rith IRA contributions without the pro-rata taxation of your contribution.

    If the SEP IRA is your current retirement plan, then you are going to have an issue.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    http://www.fswealthadvisors.com | (717) 496-0900

    #197775 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2126
    Joined: 06/24/2016

    Hi.

    I have a SEP IRA with about 29K.

    I also have a rollover IRA with about 27K.

    I have a roth IRA, but don’t contribute to it due to my high income level.

    How can I get a backdoor roth IRA account going?

    Appreciate all the help.

    Thanks.

    Click to expand…

    If the SEP-IRA was for self-employment income, then just open a one-participant 401(k) and rollover the SEP-IRA and Traditional IRA into the 401(k).

    If you have ever had net earnings from self-employment in a prior year, you are still “self-employed” per IRC §401(c)(1)(B)(ii) and are still eligible to open a 401(k) based on that, even if you don’t still have net earnings from self-employment in the current year; that just means you can’t make new contributions to it, but you can still do rollovers.

    Otherwise, rollover the SEP-IRA and Traditional IRA into an employer’s 401(k) plan if it has good options and low expenses/fees.  Most 401(k) plans have most investment options you’d build your portfolio out of anyway – total US stock or S&P 500, total int’l stock, total US bond, and usually a selection of growth/value, large/small, or dev/emerging tilts, often with institutional shares and expense ratios under 0.10% anyway.

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #198241 Reply

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