Author Topic: Backdoor Roth contribution question  (Read 1192 times)

Mrbeardedbigbucks

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Backdoor Roth contribution question
« on: September 03, 2017, 07:43:06 AM »
My wife and I are in the process of implementing our early retirement. Phase 1 - she left her job in June. Phase 2- I will leave mine in March of 2018. We're usually phased out of Roth contributions so we've been doing back door Roth contributions for a couple years. This year we will be on the border line of being able to make an actual Roth contribution because she didn't work a full year. My income fluctuates year to year due to variable bonuses so I can't know for sure how much our total income will be at the end of 2017.

What are the tax implications if I do a backdoor Roth contribution this year but turns out I could make an actual Roth contribution (frontdoor?)? Would I just have to unwind my conversion to the Roth and treat it as a regular contribution?

Thank you in advance for your help. It's probably a simple solution but can't seem to find a definitive answer.

maizeman

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Re: Backdoor Roth contribution question
« Reply #1 on: September 03, 2017, 07:58:42 AM »
The consequences are essentially nil and you can actually still do a "backdoor" Roth even if your household income is low enough that you could contribute to the Roth account directly.

Backdoor Roth just means you contribute to a traditional IRA and roll over to the Roth.

If you're above the cutoff for a traditional IRA contribution, you don't get a tax deduction for the contribution to the traditional IRA, but don't have to pay income tax on the rollover amount.

If you're below the cutoff for a traditional IRA contribution, you do get a tax deduction for the contribution to the traditional IRA, but do have to pay income tax on the rollover amount.

Normal Roth means you contribute directly to the Roth account and therefore still have to pay income tax on your contribution.

In all three scenarios your final income tax owed should be the same.

terran

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Re: Backdoor Roth contribution question
« Reply #2 on: September 03, 2017, 08:42:09 AM »
You could still do what you normally do, or as long as you do it by the tax filing deadline you could also recharacterize your traditional IRA contribution to a Roth IRA contribution instead of converting it. The only difference is that if you convert you will pay tax on whatever gain you have had since you made the contribution, if you recharacterize it's as if you made the contribution directly to the Roth in the first place, so no tax on the gains.