Author Topic: Backdoor Roth- mixing post and pre tax money  (Read 175 times)

italianant

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Backdoor Roth- mixing post and pre tax money
« on: February 09, 2019, 06:19:22 PM »
I have a traditional IRA with Vanguard that were rollovers from previous employers. Due to my filing status of married filing separately, I cannot contribute to a Roth IRA this year. I would like to do a backdoor Roth, but wondering if this is possible as I've been told you cannot mix post-tax and pre-tax money in the same pot without penalty. Since it will quickly moved from a traditional IRA to the Roth, would I still get penalized and/or have an tax repercussions? I can't seem to get a clear answer on this (also, I'm a newbie). We've already done a backdoor Roth under my husband's name, but it was easier as he doesn't have a traditional or roth IRA.

ILikeDividends

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Re: Backdoor Roth- mixing post and pre tax money
« Reply #1 on: February 09, 2019, 06:38:59 PM »
It's possible, but your existing IRA could expose your backdoor Roth conversion to the pro-rata rule:

https://www.irahelp.com/slottreport/4-things-know-about-roth-ira-conversions-and-pro-rata-rule
« Last Edit: February 09, 2019, 06:43:12 PM by ILikeDividends »

italianant

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Re: Backdoor Roth- mixing post and pre tax money
« Reply #2 on: February 09, 2019, 06:46:45 PM »
It's possible, but your existing IRA could expose your backdoor Roth conversion to the pro-rata rule:

https://www.irahelp.com/slottreport/4-things-know-about-roth-ira-conversions-and-pro-rata-rule

Okay, I'm 99% sure that is the penalty I'm referring to. So yes, doing this could in fact create this problem in my situation. Bummer.

ILikeDividends

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Re: Backdoor Roth- mixing post and pre tax money
« Reply #3 on: February 09, 2019, 06:55:12 PM »
Yeah, bummer.  :(

One thing you might do is check with your employer's 401K plan to see if they accept rollovers.  If they do, you could roll your IRA into the 401K.  401Ks aren't subject to the pro-rata rule calculations; which would put your backdoor Roth conversion back on the table of penalty-free options.
« Last Edit: February 09, 2019, 06:59:04 PM by ILikeDividends »

italianant

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Re: Backdoor Roth- mixing post and pre tax money
« Reply #4 on: February 09, 2019, 07:01:45 PM »
Yeah, bummer.  :(

One thing you might do is check with your employer's 401K plan to see if they accept rollovers.  If they do, you could roll your IRA into the 401K.  401Ks aren't subject to the pro-rata rule calculations; which would put your backdoor Roth conversion back on the table of penalty-free options.

I don't think so. I have a 401A with some pretty strict rules (i.e. I can never increase or decrease the amount contributed). I'm just limited until my student loans are paid off/forgiven.