A good problem to have - Backdoor Roth IRA in 2020?

[BiggerFishToFI]

For the past several years, I have maxed my wife and I's Roth IRAs on the 1st of the year. We did this January 1, 2019.

I think for 2019 we will be OK not exceeding the income limits with a MAGI around 180k-190k. This is assuming:

MAGI = 265k Gross - 11k (HSA) - 19k (401k) - 19k(403b) - 19k(457) - 8k(401a) = 189k. I think (hope) this is accurate.

The question is: Should I contribute to our Roth IRAs Jan 1, 2020 for the 2020 contribution year? If we stay fortunate, it is likely that we will be somewhere in the phase-out area or possibly above the top limit for 2020. A large portion of my income is unknown and comes as an end of year bonus.

How hard is it to revert the Roth IRA contributions, then do a backdoor contribution if we are above the limit? From brief research, it seems this is as simple as withdrawing it before you pay taxes, and paying taxes on any gain. Then contributing to a traditional IRA, then converting it to a Roth.

What a charlie foxtrot our tax system is.

It's sort of seeming like I should switch up my strategy and make our IRA contributions at the end of the year once I know what our tax situation is. But I also like the idea of extra time for tax-free compounding by front-loading our contributions.

Thanks!

[terran]

Do you have any previously deducted IRA balances either from IRA contributions that you deducted on your taxes or rollovers from former employer plans?

Yes, all of those deductions would reduce MAGI. Employee paid health insurance premiums would also reduce it.

Unless there's something I'm unaware of you can't contribute $11k to an HSA. The max would be $9k if you have a family plan and you're both over 55, I think.

[BiggerFishToFI]

I do have ~20k in a traditional IRA that was rolled over from an employer plan.

I guess this would subject me to the pro-Rata rule when trying to do a backdoor Roth?

And you’re right regarding the HSA, we only contributed 7k. it’s going to be very close for 2019 being over the limit as well

[terran]

Yes, that would mean you're subject to the pro rata rule. You could consider converting it, but I don't know if I'd do that or not. $20k is kind of an in between balance where I'm not sure what I'd do. If you decide not to and you end up over the limit request an excess contribution removal from the Roth and wait until you know whether you qualify in future years.

You could look in to whether your employer plan will accept a rollover from the IRA. Make sure they know it's a rollover IRA from a previous employer plan. Some plans will allow any IRA rollover, others only rollovers from rollover IRAs, and others no IRA rollovers. As long as you have a $0 previously deducted balance in all your IRAs by December 31st of the year in which you do the traditional to Roth conversion you won't owe tax on the previously deducted balance.

IRAs are individual accounts, so if you spouse doesn't have a previously deducted IRA he/she can still do a backdoor Roth even if you can't.

[BiggerFishToFI]

Thanks Terran! I'm checking into whether my 401k will accept rollovers and fingers crossed that we are just under the limit for 2019.