Author Topic: Backdoor Roth IRA Question  (Read 2564 times)

MickeyMoustache

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Backdoor Roth IRA Question
« on: March 02, 2016, 06:33:24 AM »
Hi,

I completed my backdoor Roths for 2015 & 2016 this week, however my tIRA account still has $0.36 in it because of rounding issues when transferring # of shares in the conversion process.  I though I read somewhere that you can't have both a tIRA and rIRA open at the same time for some reason, and had to fully close it out.  Does it matter or affect anything if I leave the tIRA be?  It seems easiest to leave it open, contribute to the same account each year and then convert vs. the effort to transfer the 36 cents out, close the account, and reopen over and over.

MDM

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Re: Backdoor Roth IRA Question
« Reply #1 on: March 02, 2016, 06:45:27 AM »
I though I read somewhere that you can't have both a tIRA and rIRA open at the same time for some reason, and had to fully close it out.
Not true.  If you remember where you read that (and if that is actually what was said), don't go there for advice again.

MickeyMoustache

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Re: Backdoor Roth IRA Question
« Reply #2 on: March 02, 2016, 06:47:11 AM »
I though I read somewhere that you can't have both a tIRA and rIRA open at the same time for some reason, and had to fully close it out.
Not true.  If you remember where you read that (and if that is actually what was said), don't go there for advice again.

Awesome, thanks for the quick reply! 

GrowingTheGreen

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Re: Backdoor Roth IRA Question
« Reply #3 on: March 02, 2016, 07:10:55 AM »
I'm guessing what you read is that you can't contribute $5,500 to each account every year. You can do both, but the cumulative limit is $5,500 (unless you're eligible for catch-up contributions).

MickeyMoustache

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Re: Backdoor Roth IRA Question
« Reply #4 on: March 02, 2016, 08:32:12 AM »
I'm guessing what you read is that you can't contribute $5,500 to each account every year. You can do both, but the cumulative limit is $5,500 (unless you're eligible for catch-up contributions).
That may be possible, it just happened to be the first time I've done a ROTH conversion and something about the process made me nervous... must be that "backdoor" prefix that threw me off.

MDM

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Re: Backdoor Roth IRA Question
« Reply #5 on: March 02, 2016, 08:55:12 AM »
That may be possible, it just happened to be the first time I've done a ROTH conversion and something about the process made me nervous... must be that "backdoor" prefix that threw me off.
Are you comfortable with the Form 8606 you submitted (or will submit)?  Haven't done one ourselves, and it seems simple, but there seem many questions about it in various forums.

MickeyMoustache

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Re: Backdoor Roth IRA Question
« Reply #6 on: March 03, 2016, 08:56:01 AM »
That may be possible, it just happened to be the first time I've done a ROTH conversion and something about the process made me nervous... must be that "backdoor" prefix that threw me off.
Are you comfortable with the Form 8606 you submitted (or will submit)?  Haven't done one ourselves, and it seems simple, but there seem many questions about it in various forums.

Haven't done it yet.  In very non-mustachian manner, I have used a tax accountant for the past 3 years and will use him one more time this year.  Next year I'm back on my own.  My poor excuses include not being introduced to MMM for the first 2 years and this past year changing jobs, divesting from stocks I held positions in and a few other things that seemed overwhelming on top of all of the other financial stuff I've been learning. 

I'll let you know if there's anything he shoots back to me though.

dandarc

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Re: Backdoor Roth IRA Question
« Reply #7 on: March 03, 2016, 09:03:55 AM »
You're referring specifically to a backdoor Roth.

The reason that it is recommended that you empty your tIRA accounts before doing a back-door Roth is that the conversion part is pro-rated between the taxable and not-taxable portions in your tIRA.  $0.36 will have a pretty negligible effect - usually we're talking about someone who has $100K in the tIRA or something like that where a huge portion of the $5500 conversion will be taxable if they aren't careful to get that money out of the tIRA and into, for example, a 401K first.