<p>3bm103, love your dad’s optimism. He is going to live to 103. Nice.</p>
<p>He probably will. His parents and grandparents all reached at least 99</p>
<p>Well, he was already proved right on #3, bhm.</p>
<p>It seems to me that if one doesn’t want to deal with paying additional taxes, the best thing is to fund a Roth for a kid (only if they have earned income, and you want that Roth to absolutely go to your child), or to fund a Roth for themselves, or if ineligible do a Roth, to do the backdoor (only if you don’t have pre-tax IRAs). That way there are really no taxes to be paid up front, or when it’s cashed out.</p>
<p>So notrichenough, do you have a Roth? Sounds like you don’t.</p>
<p>Nevermind… You answered that already.</p>
<p>I understand not wanting to pay that tax even if it was possible. </p>
<p>I will have to check the income limits on roths. I am still working thru a tax loss carry forward.</p>
<p>Roths didn’t start until the late 90’s, and the income and other restrictions were too much to enable me to do it. And the ability to do conversions without regard to income has just been in the last couple of years or so. I do not have the means to write a 6-figure check to the gov’t, so… I suppose I could take out another mortgage on my house.</p>
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I was laid off for a good chunk of last year, and between severance, unemployment, and being forced to exercise some options, I made more last year than I have in any other year ever. I was deep into AMT, and had to write a huge check to the IRS.</p>
<p>It’s a good problem to have when you are unemployed I guess, but it made doing a conversion doubly impossible.</p>
<p>You don’t have to convert it in one lump. As a matter of fact, a good strategy is to convert enough each year so that it doesn’t go into the next tax bracket. So if you’re in the 28% tax bracket, look to see how much you can convert before it hits the next and convert that. Way less painful too.</p>
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<p>Some states exempt tax on retirement income after certain age. In my state, if you are over 59 1/2, you don’t pay state income tax on the conversion.</p>
<p>So I’m bringing back this thread because I still have a question…is there any time period that you should wait to convert the traditional IRA to a Roth (ie the backdoor option)? I reread the thread, and there is some really valuable information in here, which was very informative to review. </p>
<p>3bm said that there was no wait required, but when I went to other sites, I noticed that some people said that converting immediately might be an audit flag. While others said it wasn’t. I actually think it wouldn’t be a flag, as it’s not that much money, and I don’t think the dates of contribution and conversion are reported. Anyone have a definitive answer to this? We did contribute to the IRA, just waiting to convert. But I don’t know if we need to.</p>
<p>I think your CPA should know and can personalize for your situation.</p>
<p>Okay, I admit it, we have never had a CPA, always did turbotax. I did just send my tax records to a really good firm, for them to take care of it for the first time ever. These guys are amazing, if they don’t save me money, I don’t know who could. But I didn’t think about asking them this question.</p>
<p>I think they would be the folks to ask. To me it’s worth it to spend a little to save a lot, especially when it concerns taxes and retirement, like this does.</p>
<p>The ideal time would be the same day. Otherwise there is a chance you’ll have gain on the amount contributed to the traditional IRA before you convert and that amount would be taxable. I believe you’re trying to avoid paying taxes on that gain.</p>
<p>If this is the first time you’ve used a CPA and are used to doing your own, I’d suggest you do your own first and then have them do it and see if there actually is a difference. You’d at least learn something.</p>
<p>busdriver11, I am not sure about what you are doing, trying to do, or trying to accomplish. I think it was explained earlier in the thread that when you convert a portion of your traditional IRA to Roth you prorate your basis over the entire amount of your IRA, so you can’t simply take the last $5000 after tax contribution and convert that $5000 tax free to a Roth. Here is a rough example: If I had a traditional IRA worth $95000 that had a zero basis (grown from all pretax IRA contributions and 401k rollovers) and I made a $5000 after tax contribution, and then immediately converted $5000 to a Roth… I would have to count 95% of the converted amount as taxable income.</p>
<p>If you currently have no IRA at all, then the so-called back door method of funding a Roth IRA probably works.</p>
<p>I just did a partial conversion of my traditional IRA yesterday. It was really easy. I did it all online. Just clicked a few boxes, typed in the $amount to convert, and it was done.</p>
<p>3bm, I swear, I can’t bear to do my taxes one more time…though the worst of it is done, collecting all the records. But our taxes for 2012 that they’re doing, should be very similar to 2011, and I think the tax rates were the same, so I think I’ll just compare the two years.</p>
<p>NJres, what we are trying to do, is contribute to a Roth, though we are ineligible. So the only way to do it is to fund a traditional non-deductible IRA, then convert it to a Roth. All other retirement income has already been converted to Roth, or is in a 401K, so should be fairly uncomplicated. Right now I’m just concerned about what I read about it being an audit flag, based on some posts I read.</p>
<p>OK, I’ve resurrected this thread. I will be rolling my traditional IRA into the 457 plan my former employer had in my name and then contributing to an IRA. I will then rollover the traditional IRA into my existing ROTH IRA (we had too much income in 2013 to do a front door ROTH IRA). This should work OK for me, I think. Not sure what our income will be in 2014, but to be cautious, I may wait until January 2014, contribute the max to that traditional IRA again and roll everything over into my ROTH IRA. Will just have to be sure to earn at least $6500 in 2014, which is what I plan to contribute to the IRA.</p>
<p>Am I missing something? If so, please advise. It seems like a good tool to me and since the contribution is not going to be deductible anyway, seems good to roll it over into a ROTH.</p>
<p>Our state currently exempts all pension income from state income tax, which is nice for us, since most of our income will be from a pension, now that H has retired.</p>
<p>Well, without rereading the entire thread: </p>
<p>I’m assuming your traditional IRA was deductible when you originally contributed? And your employer’s plan also had deductible contributions? So at that point everything in the plan would be taxable when you convert to a ROTH? So when you contribute for 2013, those contributions are not deductible? I believe you mean that you have to make sure you earn enough in 2013 to contribute the $6500. You have until April 15 2014 to contribute for 2013. </p>
<p>Then when you convert the entire amount, all but the $6500 will be taxable.</p>
<p>Let me know if I missed anything.</p>
<p>Yes, all of our traditional IRA is pre-tax $$$, as is the 457 account from my employer.</p>
<p>This year, we would not be able to have deductible contributions this year anyway. I can contribute either as a spousal IRA (as H earned way more than $6500) and partly a regular IRA, since I earned SOME money this year. Rolling it over to a ROTH should incur any additional tax, since I will be funding the IRA this year with after-tax dollars. I plan to fund the IRA in October and for 2014 in January, and then roll over both amounts to my existing ROTH IRA.</p>
<p>But you can’t contribute $6,500 to a non deductible IRA and then convert only the non taxable portion if you have IRAs already that have non deductible amounts in them. </p>
<p>Let’s say you have $95,000 in existing IRAs that are made up of deductible contributions plus the earnings. Then you contribute $5,000 (I’m using simple numbers for the explanation only) which are non deductible. Now you have $100,000 with a basis of $5,000. You cannot convert only the $5,000. Well, you can, but only 5% of it will be non taxable. </p>
<p>If you convert the entire $100,000 then 95% of it will be taxable. </p>
<p>If you still choose to do it, then convert immediately after contributing instead of waiting until January, or you will also be paying tax on any gains between October and January.</p>
<p>I am rolling over ALL my funds from existing deductible (pre-tax) IRA into an employer 457 (like a 401K) account that only has pre-tax money. That is step 1. I spent some time conferencing with both the employer’s agent and the IRA agent on this today. Had to sell the stocks in the IRA, since employer’s agent only takes cash. </p>
<p>I will open a brand new 2013 traditional non-deductible IRA for the maximum for my age, $6500. This is Step 2. I may add another $6500 for 2014 to that account in January 2014.</p>
<p>I will roll all $13,000 of this over into my existing ROTH IRA, which is step 3. Since there are all after-tax dollars and will not have gained any/much, it will be a clean rollover and not incur tax for the conversion.</p>
<p>I am only rolling into the ROTH IRA the funds I’m already having to pay taxes on that is for the 2013 and 2014 IRAs. I have no desire to convert my existing traditional IRA (funded exclusively with pre-tax $$$); that is why I will be rolling over into my employer’s retirement fund before I open and contribute to my traditional IRA for 2013.</p>
<p>^My approach is the opposite of yours. I am taking out of 401k as much as allowed to Roth. What is the advantage of converting IRA to 401k other than that your roth conversion will be simple later?</p>