Backdoor Roth IRA question

[nanu]

Hi,

I'll be starting my first real job (post-college) this year and I will be making more than the contribution limit to a Roth IRA (at least in 2016 when I'll work the entire year).
As such, I was planning on using the backdoor Roth method (contribute to a non-deductible IRA, then rollover to a Roth).
My girlfriend however will be making just under the limit to deduct her traditional IRA contribution, so I think she should use that.

But in a few years (2-3) we'll probably tie the knot, and then won't be able to contribute to a tIRA and deduct the contribution, and probably will be over the limit for Roth as well.
At that point, if we use the backdoor Roth, will we pay taxes on the rollovers because of her pre-marriage tIRA?
Is there a way around those taxes, or perhaps she shouldn't contribute to a tIRA?

Thanks!

[dandarc]

Strategies:

1.  When the time comes, roll her tIRA into a 401K or similar plan.
2.  Convert the tIRA before the year you get married to minimize taxes.
3.  Contribute to Roth IRA now.

Also hope this doesn't pass:
http://www.forbes.com/sites/ashleaebeling/2015/02/02/obama-budget-would-prohibit-backdoor-roth-iras/

Edit: corrected link.

[finitelement]

Strategies:

1.  When the time comes, roll her tIRA into a 401K or similar plan.
2.  Convert the tIRA before the year you get married to minimize taxes.
3.  Contribute to Roth IRA now.

Also hope this doesn't pass:
http://www.forbes.com/sites/janetnovack/2015/01/05/the-forbes-2015-tax-guide/

Sorry, if what doesn't pass? This just links us to a tax guide

[dandarc]

Whoops -

http://www.forbes.com/sites/ashleaebeling/2015/02/02/obama-budget-would-prohibit-backdoor-roth-iras/

Apparently the proposed federal budget would make the Backdoor Roth IRA and the Megabackdoor Roth IRA no more.

[nanu]

I understand the backdoor might be closed at some point(though I kinda doubt it'll happen very soon),
but if it passes, would it still be possible to convert a tIRA to Roth after FIRE? (to establish a Roth conversion pipeline)

As long as the answer to that is yes, then there is no reason not to use the backdoor while it still exists.

[dandarc]

I understand the backdoor might be closed at some point(though I kinda doubt it'll happen very soon),
but if it passes, would it still be possible to convert a tIRA to Roth after FIRE? (to establish a Roth conversion pipeline)

As long as the answer to that is yes, then there is no reason not to use the backdoor while it still exists.

Answer - I don't think the proposed change has anything impact on the Roth conversion pipeline.  I think the conversion pipeline is not nearly as likely to be outlawed, because the conversion creates a taxable event, whereas when you do the backdoor Roth IRA for contributions right, you're basically just circumventing the income limits.

The proposed change is to limit conversions only to taxable amounts - so if you put in non-deductible contributions to your tIRA, they'd be stuck there.  This has no impact on the conversion pipeline where you're converting regular deferred amounts today to withdraw 5 years from now - that conversion is taxable income today.

[zurich78]

Hi,

I'll be starting my first real job (post-college) this year and I will be making more than the contribution limit to a Roth IRA (at least in 2016 when I'll work the entire year).
As such, I was planning on using the backdoor Roth method (contribute to a non-deductible IRA, then rollover to a Roth).
My girlfriend however will be making just under the limit to deduct her traditional IRA contribution, so I think she should use that.

But in a few years (2-3) we'll probably tie the knot, and then won't be able to contribute to a tIRA and deduct the contribution, and probably will be over the limit for Roth as well.
At that point, if we use the backdoor Roth, will we pay taxes on the rollovers because of her pre-marriage tIRA?
Is there a way around those taxes, or perhaps she shouldn't contribute to a tIRA?

Thanks!

In order to avoid pro rata taxation when you do a backdoor roth, you have to make sure you carry a zero balance in your traditional IRA accounts (all of them, not just the one you're using for the conversion).

So what I did, is rolled my traditional IRA funds in to my company 401K ensuring a zero balance, then I make a non-deductible traditional IRA contribution, which I then convert to my Roth.