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Wife's Retirement Account Rollover

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  • Avatar Peds 
    Participant
    Status: Physician
    Posts: 3010
    Joined: 01/08/2016

    It doesn’t count towards contributions.

    #195593 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6912
    Joined: 01/09/2016
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed?

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

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

    #195594 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 814
    Joined: 01/11/2017

    I’d do the wife rollover IRA, then convert, and I’d also bump up your pretax 403b /401k contributions to offset the tax hit (and to save more).

    #195596 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018

    I’d do the wife rollover IRA, then convert, and I’d also bump up your pretax 403b /401k contributions to offset the tax hit (and to save more).

    Click to expand…

    Okay. So to reiterate the scenario I laid out before (convert 403b to tIRA, then convert that over next couple years to rIRA), I would theoretically have the money I was initially going to place into my wife’s rIRA to invest. With that extra money and the ability to open an individual 401k through my 1099 income, this would help offset the tax hit, correct?

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195598 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 814
    Joined: 01/11/2017

    Either 401k or IRA accomplishes the same thing. Can you do both? 🙂

    #195599 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018

    Either 401k or IRA accomplishes the same thing. Can you do both? 🙂

    Click to expand…

    I wish, but at this point in life, no.

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195600 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed? 

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195604 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6912
    Joined: 01/09/2016
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed?

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    Click to expand…

    ??? I feel like I’m starting all over again.

    Backdoor Roth conversions will not be taxed as long as you have no pre-tax TIRA in your name on 12/31 of the year you convert. That is true in every state.

    It’s the conversion(s) from your wife’s 403b to TIRA rollout that will be taxed when you move it/them to a Roth IRA. Except not in KY because $28,000 is < $31,110.

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

    #195618 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed? 

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    Click to expand…

    ??? I feel like I’m starting all over again.

    Backdoor Roth conversions will not be taxed as long as you have no pre-tax TIRA in your name on 12/31 of the year you convert. That is true in every state.

    It’s the conversion(s) from your wife’s 403b to TIRA rollout that will be taxed when you move it/them to a Roth IRA. Except not in KY because $28,000 is < $31,110.

    Click to expand…

    Okay. I made a mistake. I again confused conversions with contributions. I now understand that my conversion from tIRA to rIRA would not count against my 6k contribution for that year.

    And I understand that I am not doing a backdoor Roth IRA conversion.

    To sum it up, I need to make sure that when I make the conversion from tIRA to rIRA that I only convert enough in order to stay in the 12% tax bracket. So this will likely take me two years or more. And when I do this I will not be paying KY state taxes.

     

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195626 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 309
    Joined: 03/26/2018
    Earnest refinancing bonus

    I think you just need to have it in the back of your mind that when you become an attending, you’ll want to do the backdoor roth IRA and you’ll have pro-rata issues if you (or your wife) have a tIRA then. When that happens, you just want to make sure you can move whatever, if anything, is remaining in the tIRA to a 401k whether at an employer or an independent 401k

    #195641 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018

    JBME – right. I think by the time I am an attending there will be a small enough amount in her TIRA that I can convert the rest to a rIRA and incur a pretty small tax hit.

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195642 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6912
    Joined: 01/09/2016
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed?

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    Click to expand…

    ??? I feel like I’m starting all over again.

    Backdoor Roth conversions will not be taxed as long as you have no pre-tax TIRA in your name on 12/31 of the year you convert. That is true in every state.

    It’s the conversion(s) from your wife’s 403b to TIRA rollout that will be taxed when you move it/them to a Roth IRA. Except not in KY because $28,000 is < $31,110.

    Click to expand…

    Okay. I made a mistake. I again confused conversions with contributions. I now understand that my conversion from tIRA to rIRA would not count against my 6k contribution for that year.

    And I understand that I am not doing a backdoor Roth IRA conversion.

    To sum it up, I need to make sure that when I make the conversion from tIRA to rIRA that I only convert enough in order to stay in the 12% tax bracket. So this will likely take me two years or more. And when I do this I will not be paying KY state taxes.

    Click to expand…

    By Jove, you’ve nailed it! 🙂

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

    #195652 Reply
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed? 

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    Click to expand…

    ??? I feel like I’m starting all over again.

    Backdoor Roth conversions will not be taxed as long as you have no pre-tax TIRA in your name on 12/31 of the year you convert. That is true in every state.

    It’s the conversion(s) from your wife’s 403b to TIRA rollout that will be taxed when you move it/them to a Roth IRA. Except not in KY because $28,000 is < $31,110.

    Click to expand…

    Okay. I made a mistake. I again confused conversions with contributions. I now understand that my conversion from tIRA to rIRA would not count against my 6k contribution for that year.

    And I understand that I am not doing a backdoor Roth IRA conversion.

    To sum it up, I need to make sure that when I make the conversion from tIRA to rIRA that I only convert enough in order to stay in the 12% tax bracket. So this will likely take me two years or more. And when I do this I will not be paying KY state taxes.

    Click to expand…

    By Jove, you’ve nailed it! 🙂

    Click to expand…

    Thank the lord. Thanks for your patience!

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #195667 Reply
    Liked by jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6912
    Joined: 01/09/2016
    Jfox – I live in your state. So you would probably know off-hand if Roth conversions are taxed? 

    Click to expand…

    The first $31,110 is tax free. Was $41k until this year.

    Click to expand…

    So since I will only be converting 6k/year I would not have to pay state taxes. Correct?

    Click to expand…

    ??? I feel like I’m starting all over again.

    Backdoor Roth conversions will not be taxed as long as you have no pre-tax TIRA in your name on 12/31 of the year you convert. That is true in every state.

    It’s the conversion(s) from your wife’s 403b to TIRA rollout that will be taxed when you move it/them to a Roth IRA. Except not in KY because $28,000 is < $31,110.

    Click to expand…

    Okay. I made a mistake. I again confused conversions with contributions. I now understand that my conversion from tIRA to rIRA would not count against my 6k contribution for that year.

    And I understand that I am not doing a backdoor Roth IRA conversion.

    To sum it up, I need to make sure that when I make the conversion from tIRA to rIRA that I only convert enough in order to stay in the 12% tax bracket. So this will likely take me two years or more. And when I do this I will not be paying KY state taxes.

    Click to expand…

    By Jove, you’ve nailed it!

    Click to expand…

    Thank the lord. Thanks for your patience!

    Click to expand…

    Anything for a fellow Kentuckian 😉

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

    #195678 Reply
    Liked by WorkingToFish
    WorkingToFish WorkingToFish 
    Participant
    Status: Resident
    Posts: 50
    Joined: 08/28/2018

    Okay. I have been looking at some numbers:

    Was able to rollover my wife’s 403b into a Vanguard tIRA that I plan on converting to Roth.

    My projected income for this year will likely be 56.5k W2 income and at least 10k of 1099 income. And my wife’s income will be roughly 30k for the year, rounding us out at 56.5k + 10k + 30k = 96.5k. This, minus the standard deduction of 24,400, will be 72.1k, putting us into the 12% marginal tax bracket.

    With a (projected) AGI of 72.1k, I am assuming I would want to convert just enough to stay under 78,950 AGI in order to pay 12% taxes on the conversion? But if I underestimate my AGI, I could end up paying 22% on this conversion, correct?

    What would the best steps be from here? My inclination is that I should go ahead and use the money in the tIRA, place it into my index fund of choice, then wait until the end of the year to get a better idea of what my 1099 income will end up being, and then make the conversion from there to stay under the 78,950 mark.

    However, now that I look even further into the future, once I am an attending in 2.5 years, I will pay much higher taxes on the conversion, anyway. So perhaps it would be better to just convert as much as I can at this point without worrying about staying in the 12% marginal tax bracket and just limit myself by how much of the tax bill I foresee being able to cover.

    I apologize for the neuroses over this scenario. I just want to be sure I proceed with caution and make informed decisions. Everyone here is greatly helpful in offering guidance so I appreciate the help!

     

    I have never been lost, but I will admit to being confused for several weeks. - Daniel Boone

    #197150 Reply

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