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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Clean Shaven on May 24, 2017, 03:17:00 PM

Title: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 24, 2017, 03:17:00 PM
Is there any benefit to someone in my situation contributing to a traditional IRA?

- I have a profit sharing plan at work, maxes out at ~ 54K -- basically like a 401k
- Spouse has a 401k at work.  We max it out.
- Taxes - file as married filing jointly
- Income too high to contribute to a Roth IRA
- Income too high to contribute to a traditional IRA and deduct any of it. 
- Have an old 401k that was converted into a rollover IRA.  This affects current ability to do backdoor Roth conversion (pro rata rule).
- Have an HSA.  We max it out, hold investments in it, and are treating it like an IRA (have not withdrawn anything from it).

So, what advantage is there to contributing to a tIRA for me?  The only things I can think of are for purposes of doing Roth conversions in the future, and for not being taxed on any income generated by those contributions (so long as that $ is held in the tIRA).

Current excess $ is being invested in a taxable account.  I could max a tIRA, but not sure there is much benefit.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: MDM on May 24, 2017, 03:56:24 PM
Can either of you roll your IRAs into your 401k?  That would clear the way for the backdoor Roth.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 24, 2017, 04:03:40 PM
Can either of you roll your IRAs into your 401k?  That would clear the way for the backdoor Roth.

No, unfortunately.  We both checked.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: MDM on May 24, 2017, 04:42:00 PM
Can either of you roll your IRAs into your 401k?  That would clear the way for the backdoor Roth.
No, unfortunately.  We both checked.
In that case, in answer to the thread question, "not much".

See Non-deductible traditional IRA - Bogleheads (https://www.bogleheads.org/wiki/Non-deductible_traditional_IRA) for reasons.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 24, 2017, 04:52:35 PM
In that case, in answer to the thread question, "not much".

See Non-deductible traditional IRA - Bogleheads (https://www.bogleheads.org/wiki/Non-deductible_traditional_IRA) for reasons.

Thanks - good info at that link. 
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: FIbyFive on May 25, 2017, 07:41:11 AM
Have you looked into opening a solo 401k up as a sole proprietor? Fidelity's solo 401ks allow you to roll traditional IRA funds into it. Which would then clear the way for Roth conversions annually with non-deductible traditional IRA contributions.

There is some paperwork included, and you will get some strange stares from Fidelity (it's very rare for customers to roll INTO a 401k)... but it's what I did just last week for this purpose.

We do, however, have a side hustle that we are also using the 401k for, so it's for a greater purpose than just the conversion scheme, but it MAY be worth it for you if you have several more working years left.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 25, 2017, 11:23:05 AM
I have not looked into opening a solo 401k.  Would it be doable?  Neither I nor my spouse has a side business, and we each have employer-provided retirement plans.

Also, we may well be FIREing next year, or at least cutting back to very part time. 
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: PhysicianOnFIRE on May 25, 2017, 10:44:46 PM
Can you roll the rollover IRA back into a 401K? That would eliminate the pro-rata rule and allow you to backdoor.

If not, then a non-deductible IRA contribution sounds like a headache. I did it in the past, but always worried about keeping proper track and being forced to pay tax on it again at some point in the future.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 26, 2017, 10:54:01 AM
Can you roll the rollover IRA back into a 401K? That would eliminate the pro-rata rule and allow you to backdoor.

If not, then a non-deductible IRA contribution sounds like a headache. I did it in the past, but always worried about keeping proper track and being forced to pay tax on it again at some point in the future.

No, neither of us can "roll in" outside funds into our 401k/profit sharing plans.  So the backdoor Roth conversion isn't usable currently.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: With This Herring on May 26, 2017, 11:36:16 AM
I have not looked into opening a solo 401k.  Would it be doable?  Neither I nor my spouse has a side business, and we each have employer-provided retirement plans.

Also, we may well be FIREing next year, or at least cutting back to very part time.

If your earned income is going to be severely cut next year, then at that point will you be able to make normal tIRA or Roth IRA contributions again?  The roll-into-401(k)-stuff to do a backdoor Roth IRA doesn't seem worth the rigmarole if this issue only precludes you from making IRA contributions for one year.
Title: Re: Any reason to contribute to non-deductible trad IRA?
Post by: Clean Shaven on May 26, 2017, 12:23:23 PM
I have not looked into opening a solo 401k.  Would it be doable?  Neither I nor my spouse has a side business, and we each have employer-provided retirement plans.

Also, we may well be FIREing next year, or at least cutting back to very part time.

If your earned income is going to be severely cut next year, then at that point will you be able to make normal tIRA or Roth IRA contributions again?  The roll-into-401(k)-stuff to do a backdoor Roth IRA doesn't seem worth the rigmarole if this issue only precludes you from making IRA contributions for one year.

Yes, I think so.  If things go as planned and I quit next year, I would be able to fund a normal (and tax-deductible) tIRA or Roth IRA contribution for 2018.  I would have to play with calculators to see which makes more sense for tax purposes.  I would have regular earned income, though significantly reduced (i.e. working for only about the first 3 months of 2018).