Author Topic: Finding a CPA aka we no longer qualify for a Roth  (Read 525 times)

MayDay

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Finding a CPA aka we no longer qualify for a Roth
« on: July 11, 2019, 01:09:58 PM »
Short version: we are over the Roth income limit and want an accountant to help us figure out the best strategy going forward and possibly file our annual taxes and do the whole backdoor Roth thing if that is the strategy we decide on. How do we find someone good in MN?

Long version: In 2018 we went over the Roth income limit for the first time. It occurred due to a job change that resulted in a bonus from an old job and a signing bonus from the new job falling in the same year.  Because it was unplanned we had already made our Roth contributions for the year and we had to recharacterize them when we filed our taxes.

We might be ok in 2019 but barring unforeseen circumstances we will be over it again shortly.

I hate tax stuff and have no desire to spend hours poring over it and figuring it out myself, and H is on the same page. We have done TurboTax ourselves up until now.

I think it is time to hire an accountant to help us come up with a strategy and probably implement it too. How do you find one who understands this stuff? Or do they all? I am in Mpls. I posted in the local MMM fb group and got two reccs (one is not taking clients, the other I will talk to but their website is heavily religious so I am skeptical).

Thoughts or advice?
« Last Edit: July 11, 2019, 01:24:39 PM by MayDay »

ChpBstrd

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #1 on: July 11, 2019, 01:54:34 PM »
We also went over and had to recharacterize in 2018, which was a PITA. Our solution is to leave 2019 contributions invested in my taxable account until tax time, and then when we know what our Adjusted Gross Income will be I will send as much as possible to our traditional IRAs first and then the remainder to our Roth’s. This is the only way I can think of to truly optimize. An accountant would be constrained by the same rules.

Roth limits:
https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019

Traditional IRA limits:
https://www.irs.gov/retirement-plans/ira-deduction-limits

Kronsey

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #2 on: July 11, 2019, 01:56:23 PM »
I'm a CPA. I'm not taking clients, so hopefully you take the advice as unbiased :)

What are your income sources? W-2 jobs with 401(k) plans already in place?

Can you share more on what you mean by "time to hire an accountant to help us come up with a strategy and probably implement it too"?

I've found past clients sometimes get frustrated when they aren't sure what services they are paying for. Many seem to think that "prepare my tax return for $XXX.XX" also seems to include tax planning engagements. Most CPAs are so busy with compliance work, they very rarely go out of their way to look for tax planning engagements.

Also - many people are interested in tax planning until they see the fees involved. In other words, many CPAs don't waste time trying to sell non-compliance based services because they are already busy enough and never have to sell anything once they find the client.

So my overall advice (before hearing further info on your personal situation) is to make sure you are really clear with the potential CPA or EA you hire that you are wanting planning help as well as compliance help. Then make sure you understand what they are charging you for. You should expect two separate fees instead of just one compliance fee.

MayDay

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #3 on: July 11, 2019, 02:01:04 PM »
2 W2 jobs, one has an ESPP but otherwise simple.  Unlikely to have stock options any time soon. We each have access to a 401k and have been fully funding Roth's and 401K's for 95% of our savings so far. NW in the ~850k range.

I am definitely looking for tax planning, and maybe annual filing. How much for tax planning cost? I was thinking maybe 500$ the first time with a quick 100$ check-in annually. Is that wya off base?

I'm worried we are getting into the territory of needing to keep some kind of records now so that when we start using the money in 20 years we know what % of each account was purchased in which tax status, etc.

Kronsey

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #4 on: July 11, 2019, 02:24:26 PM »
2 W2 jobs, one has an ESPP but otherwise simple.  Unlikely to have stock options any time soon. We each have access to a 401k and have been fully funding Roth's and 401K's for 95% of our savings so far. NW in the ~850k range.

Your situation sounds pretty straight forward. I personally don't think there is much planning to be done if nothing changes for you regarding employment, income, etc. Probably just need someone to walk you through the back door ROTH strategy. Sounds like you are in good shape if all retirement money is currently housed in 401ks and ROTHs.

I am definitely looking for tax planning, and maybe annual filing. How much for tax planning cost? I was thinking maybe 500$ the first time with a quick 100$ check-in annually. Is that wya off base?

A good CPA or EA with tax planning experience is probably going to be trying to realize $200+ per hour (could go higher, but shouldn't be too far north of $300/hr). From everything you've stated, I don't think it would take more than a couple of hours of planning for the initial meeting.

I think your expectation of fees is reasonable, but if you want a yearly check in I would probably double that amount. The check in won't take a lot of time, but just to plan for a phone call and review your file would be close to an hour even if the phone call was only 10 minutes.

Annual filing you are probably looking at a minimum of $300. Some are much less, but they tend to be in a hurry. You don't want your accountant to always be rushing IMHO.

I'm worried we are getting into the territory of needing to keep some kind of records now so that when we start using the money in 20 years we know what % of each account was purchased in which tax status, etc.

Don't be worried. Your situation isn't overly complex. Sounds like you are a mostly worried/frustrated from being caught off guard by being over the income limits for ROTH contributions last year. From everything you've said, you took appropriate measures to rectify.

Moving forward, you now know you won't qualify for ROTH so you will need to implement the backdoor strategy.

Really the only other thing to consider is taxable account investing if you still have money left over after contributing to everything else first. You'll want to make sure you are being tax efficient with your taxable accounts.

MayDay

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #5 on: July 11, 2019, 02:38:06 PM »
Thank you. Very helpful.

Now I just need to find someone.....

mlipps

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #6 on: July 11, 2019, 02:38:49 PM »
You don't need a CPA for this. My boyfriend has paid for one for over 5 years and I taught him about backdoor Roths last fall. Everything you need to know is online with an extreme level of detail on how to prepare it.

Kronsey

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #7 on: July 11, 2019, 02:58:12 PM »
You don't need a CPA for this. My boyfriend has paid for one for over 5 years and I taught him about backdoor Roths last fall. Everything you need to know is online with an extreme level of detail on how to prepare it.

I agree with this if you are willing to properly research and execute. Here is a good article basically detailing everything you need to know: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

I would caution though, that if you DO NOT feel up to it, or if you just don't want to do it, it may be wise to look for help. I've fixed a lot of "very easy" stuff from business owners trying to save a few bucks. It is no knock on them (or you), but just a reminder that we all have different aptitudes and preferences for how we spend our time and money. Even though this forum is very pro DIY, don't let that sway you from making the choice you feel is best for you and your situation.

There are no big, magical "tax planning secrets" that professionals have access to that you do not. It is just a matter of wanting to DIY something vs outsource.

MayDay

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #8 on: July 11, 2019, 03:48:12 PM »
Correct ^^

I am well aware that I could learn to do it myself. But I have no intention of doing so. Thus the point of this post.

I "could" learn anything, but I choose to spend my time learning the things I am interested in, and hire out the things that make me want to stab my eyes out and/or know I will avoid doing indefinitely to my detriment.

reeshau

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #9 on: July 12, 2019, 03:09:39 AM »
You don't mention a Traditional IRA with a balance, so it is really simple.  You should be able to get the help you need from your discount broker, for free.

You have a Roth, so:
1) Open a Traditional IRA
2) Make your non-deductible contribution to it.  (since you don't qualify for Roth, you also don't qualify for pre-tax TIRA)  Leave this in cash.
3) The day after the deposit clears, fill out your broker's transfer / deposit slip to go from TIRA to Roth
4) Voila!
5) Leave the TIRA open for next year.  Generally, as long as you make your one transaction a year, the broker will leave it open.

The link to white coat investor shows the gory details, but you said you're a TurboTax user, so it will take care of the 8606 along with the rest of your return.

No skin off my nose if you want someone to do this for you.  But I don't think it would be worth engaging an accountant for it's own sake.  If you did have a TIRA with a balance, then you would have a pro-rata calculation to deal with.

« Last Edit: July 12, 2019, 06:39:03 AM by reeshau »

MayDay

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #10 on: July 12, 2019, 05:57:03 AM »
We do both have traditional IRA's due to rolling old 401k's into trad. IRA.  At the time we didn't have options to xfer into new 401k's (employment gap) and we're trying to get out of really high fee 401k's ASAP.  I forgot about that when I responded above.

I'm also not sure if we should do a Roth conversation vs. invest in a brokerage account. In part because I don't ya great visualization of why one is better, and in part because it seems like cheating the intended system and might someday come back to haunt us.


reeshau

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #11 on: July 12, 2019, 06:59:51 AM »
Now, these sound more like questions that are worthy of getting professional help:  strategy, direction, long-term projections, etc.  I would have no problem if you said "I'd like to engage a (fee-only) financial planner and/or tax planner to determine how to structure my portfolio for future goals, given that our incomes are rising, we have a number of investment accounts, and we have in mind to retire in XY years.  We would like to build our portfolio and lay out a distribution strategy, including understanding the sensitivity of this strategy to potential significant costs (e.g. healthcare) and tax changes."

Go for it!  But I'm thinking you now want a CFP more than a CPA.

In terms of direct answers, Roth has a distinct advantage in terms of taxation on earnings, but there are caveats.  if you wanted to pick something particularly risky, like individual stocks, then you have to understand that you won't be able to take capital losses from the account, and understand what that means to you.  And, of course, there are all the questions around access prior to 59.5 years, and how you feel about that.

To your comment on cheating the system, does it make you feel any different if you knew that this was left in the law *intentionally*?  The tax reform act of 2018 made a number of changes to IRA's; this method existed beforehand, and does again now.  So, it's not that it's a secret.  Moreover, a complex tax system will have many boundary conditions: some work to reduce taxes, some show >100% taxes on small increases in income.  Cheating is making up numbers or doing something to change the math.  Hacking is understanding the structure as the numbers as they are, and making optimal choices with that knowledge.  Certainly, there is plenty of discussion here on the ACA cliff and managing around that; does such talk also give you similar feelings?

mlipps

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #12 on: July 12, 2019, 09:05:52 AM »
If you have a traditional IRA balance stop, do not pass go, do not try a backdoor Roth yet. Do you currently have employer 401k's that you could roll the TIRA back into? If so, do that first. If not, you may not be able to do the backdoor Roth, depending on how large the balance is and how much tax you're willing to pay. I'm guessing they're not insubstantial since they're former 401k's and this is MMM.

Paul der Krake

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #13 on: July 12, 2019, 09:16:42 AM »
Correct ^^

I am well aware that I could learn to do it myself. But I have no intention of doing so. Thus the point of this post.

I "could" learn anything, but I choose to spend my time learning the things I am interested in, and hire out the things that make me want to stab my eyes out and/or know I will avoid doing indefinitely to my detriment.
You've already spent more time on this thread than it would have taken you to do it.

BeanCounter

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #14 on: July 12, 2019, 10:12:13 AM »
 CPA here. Tax is not my area of focus though so I'll just put that out there FWIW.
I don't think hiring a CPA to do tax planning is actually going to help you that much. Especially since this seems to be driven by a one time event. Here is what I would take a look at before getting outside help-
 1)I think you said you are fully funding your 401ks? Double check that.
 2) Do you have access to an HSA? If so make sure you are fully funding that.
3) Did your 2018 tax return include any capital gains or dividend income? If yes than you need a strategy around that and that would be worth a trip to a financial planner rather than a CPA. You can do a detailed analysis of your investments and see if you can change your strategy to be more tax advantageous. A good financial planner should be able to help with this.
4) Are there any other sources of income that will come in 2019?

So if you do all of the above and still estimate using your latest pay stubs that you will not be able to contribute to a Roth going forward, then there isn't much you can do about it other than use the back door Roth to contribute to your Roth. But that will only help you with future taxes and we don't know exactly what that will look like when you retire.

If it makes you feel any better, I'm a CPA and I had to recharacterize our Roth contributions last year. I forgot to think about the RMD's on my inherited IRAs. It happens. And it's not a big deal.

MDM

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Re: Finding a CPA aka we no longer qualify for a Roth
« Reply #15 on: July 12, 2019, 11:20:21 AM »
I am definitely looking for tax planning, and maybe annual filing. How much for tax planning cost? I was thinking maybe 500$ the first time with a quick 100$ check-in annually. Is that wya off base?
I would hope you could get good advice for $500.

Hmm, maybe I should think about unretiring if I could get $500 per explanation of the Investment Order post and links therein.  Ok, thought about it: nope. :)

And I agree that how you choose to allocate your time and money is up to you, not what random internet posters might think.  If you do interview potential advisors, consider asking "what extra forms will we need to file if we do backdoor Roths?" If the answer is "form 8606 for each of you" then that's a good sign.  If the answer is "what's a backdoor Roth?" then that person might not be for you.