Author Topic: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'  (Read 2359 times)

TXBruiser

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2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« on: February 01, 2016, 07:17:47 AM »
Looking for thoughts on how you would make a backdoor Roth contribution for both 2015 and 2016 before April 18th. 

Background:
Married with combined $200k+ income. 
Max out my 401k every year (wife doesn't have one)
I have a little bit of $$$ sitting in a former employers Roth 401k account
neither my wife or myself has ever opened an IRA account in the past

We have extra cash sitting around and I am thinking of investing it into a IRA, and since I can still make a 2015 contribution and a 2016 contribution this is my plan so it looks good on paper incase I get audited:

1) Open up a Traditional IRA in my name and a second in my wifes name.
2) Then make a $5500 deposit into each of the Traditional IRAs (our 2015 contributions)
3) let it sit for 2-7 days as cash (no capital gains)
4) Make a second deposit into each for $5500 (our 2016 contributions)
5) let that sit 2-7 days (no capital gains)
6) Open Roth IRA accounts for both my wife and I
7) Make a single transfer of $11000 from my Trad IRA to my Roth IRa, and a $11000 transfer from my wifes traditional IRA to her Roth IRA.
8) Now that they are in Roth IRAs I can invest freely
9) Wait until 2017 and do just the normal $5500 backdoor contributions to each account

My goal is to make clear distinctions of which deposits were for 2015 and 2016 so that if I was audited it doesn't look like I over contributed for 2016.

Any and All comments welcome!!!  Thanks
« Last Edit: February 01, 2016, 07:19:55 AM by TXBruiser »

ToeInTheWater

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Re: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« Reply #1 on: February 01, 2016, 07:24:40 AM »
looks good

when we did this (at Fidelity), the contributions were tagged by contribution year up front - ie, the button was named something like "make a 2015 contribution" or "make a 2016 contribution"

b

TXBruiser

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Re: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« Reply #2 on: February 01, 2016, 07:51:09 AM »
Im going to go through Fidelity as well.  so you tagged them with those names or Fidelity did?

Retire in CO

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Re: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« Reply #3 on: February 01, 2016, 09:06:50 AM »

No worries on designating that the funds contributed are for Roth 2015 or 2016. When you open/contribute to a Roth, the account is opened as a Roth and you are required to designate whether the funds are for 2015 or 2016.

One thing I would caution you about...Form 8606. We have been contributing through a backdoor Roth since 2010. Our first accountant didn't think we needed to file the form, even though I kept asking. An old dog not learning new tricks, I suppose. It continued to concern me so in 2013, I switched to an accountant that supposedly knew how to correctly complete this form. Last July, IRS sent us a tax notice for the non-deductible contributions. Had to pay the accountant another $350 to straighten that out. Asked him to file corrected Form 8606's for all past years ($50 each year for each tax payer) to be certain that everything is documented but he recommended that we wait until our 2016 tax return to do that because he was afraid that all the repeated "issues" would target us for audit. :-o 
It seems that many accountants weren't knowledgeable when the backdoor Roth first came about. So please be sure you or your accountant properly file this form, because it might come back to haunt you, in a big way, years from now when the IRS tries to tax you again. :-o
If I had it to do over, I probably wouldn't have bothered. But get that Form 8606 correctly done and you should be good!

ToeInTheWater

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Re: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« Reply #4 on: February 01, 2016, 09:12:43 AM »
Im going to go through Fidelity as well.  so you tagged them with those names or Fidelity did?


Fidelity did.   pretty sure about that...


TXBruiser

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Re: 2015 and 2016 Backdoor Roth IRA 'HOW-TO'
« Reply #5 on: February 01, 2016, 09:40:55 AM »

No worries on designating that the funds contributed are for Roth 2015 or 2016. When you open/contribute to a Roth, the account is opened as a Roth and you are required to designate whether the funds are for 2015 or 2016.

One thing I would caution you about...Form 8606. We have been contributing through a backdoor Roth since 2010. Our first accountant didn't think we needed to file the form, even though I kept asking. An old dog not learning new tricks, I suppose. It continued to concern me so in 2013, I switched to an accountant that supposedly knew how to correctly complete this form. Last July, IRS sent us a tax notice for the non-deductible contributions. Had to pay the accountant another $350 to straighten that out. Asked him to file corrected Form 8606's for all past years ($50 each year for each tax payer) to be certain that everything is documented but he recommended that we wait until our 2016 tax return to do that because he was afraid that all the repeated "issues" would target us for audit. :-o 
It seems that many accountants weren't knowledgeable when the backdoor Roth first came about. So please be sure you or your accountant properly file this form, because it might come back to haunt you, in a big way, years from now when the IRS tries to tax you again. :-o
If I had it to do over, I probably wouldn't have bothered. But get that Form 8606 correctly done and you should be good!

Thanks for this valuable insight, I will be sure to add a note about this to my 2016 receipts.

Im going to go through Fidelity as well.  so you tagged them with those names or Fidelity did?


Fidelity did.   pretty sure about that...



Thanks for your help, and reassurance that all looks good.