Author Topic: Confirm No Issues on Back Door Roth Situation  (Read 389 times)

COlady

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Confirm No Issues on Back Door Roth Situation
« on: March 25, 2019, 09:59:10 AM »
I have an extremely wealthy and bright client that is 30 years old. He is a trust fund baby but a good one. 

This is what they/we are trying to do in 2018/2019. I think this should be fine but please let me know if you see an issue.

2018 - Wife made $100k, husband made $0 earned income as he is going back to school. $800k in investment income from trust.

Wife left her job for a new one in 2018. She rolled her 401k into a traditional IRA and then converted all of it to Roth in 2018. 

Planning to advise client to make $5,500 non-deductible IRA contribution for both of them in 2019 (he can do spousal IRA since she has the earned income to cover him) for 2018 tax year and then convert to Roth in 2019. Neither of them have any other IRA funds that would cause a portion of Roth conversion to be taxable in 2019.

He is also going to investigate doing a MEGA Back Door Roth through wife's 401k starting in 2019.

All good here right?  They clearly have enough money to take advantage of any and all strategies. The opposite problem of most of us! We understand the strategy but many can't afford to max it.

Secret Stache

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Re: Confirm No Issues on Back Door Roth Situation
« Reply #1 on: March 25, 2019, 11:35:36 AM »
Holy cow, that's a lot of money.

As long as that $100k rollover sits for 5 years it can be withdrawn tax and penalty free.  Any gains in that 5 years would be taxable.

I did a similar rollover (similar in function not dollar amount) and it was easy-peasy.  Roth contributions and distributions are documented on your IRS Wage and Income transcripts and in your tax return on form 5498 so its not difficult to keep track of how much can be withdrawn down the road.

MDM

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Re: Confirm No Issues on Back Door Roth Situation
« Reply #2 on: March 25, 2019, 01:09:15 PM »
Planning to advise client to make $5,500 non-deductible IRA contribution for both of them in 2019 (he can do spousal IRA since she has the earned income to cover him) for 2018 tax year and then convert to Roth in 2019. Neither of them have any other IRA funds that would cause a portion of Roth conversion to be taxable in 2019.
...
All good here right?
Yes.

And while they're at it, might as well have each contribute $6000 now for 2019 and convert that (along with the $5500 each for 2018) to Roth ASAP.