Backdoor Roth IRA via tIRA or Roth IRA directly

[cranky_in_nyc]

Longtime lurker, etc etc.

This may be a completely dense question, but in any case, my DH and I exceed the income limitations for deducting tIRA contributions so we were looking into converting our tIRA to Roth via the backdoor method.  Would it make more sense, or is it even possible to just contribute directly to a Roth rather than doing the conversion?  We have employer offered 401Ks which we max out. Does this make us ineligible to contribute directly to Roth?

Second question, if I understand correctly, when converting tIRA to Roth, you are on the hook for taxes on any gains.  However, thanks to the lovely market, we do not have any unrealized gains, and therefore would not be paying any taxes on the conversion.  Is this correct? TIA

[MustacheAndaHalf]

You confused me for a moment with "converting tIRA to Roth", when you meant "convert non-deductible Traditional IRA to Roth".  And yes, a non-deductible IRA that has lost value will not be taxed when it's converted to a Roth IRA.

As to contributing to a Roth IRA directly, don't you already exceed the cap on income?  If you can't make deductible IRA contributions, I would expect you can't contribute to a Roth IRA either.

[Mother Fussbudget]

You confused me for a moment with "converting tIRA to Roth", when you meant "convert non-deductible Traditional IRA to Roth".  And yes, a non-deductible IRA that has lost value will not be taxed when it's converted to a Roth IRA.

As to contributing to a Roth IRA directly, don't you already exceed the cap on income?  If you can't make deductible IRA contributions, I would expect you can't contribute to a Roth IRA either.

+1.  If you make over $194K (married filing jointly) you can't contribute directly to a Roth IRA.  Between $184k-and-$194K you're partially eligible.  You can only contribute the full amount to a Roth IRA if your (MAGI -modified adjusted gross income) is less than $184K. MAGI is adjusted gross income from your tax forms plus deductions taken for things like student loan interest and higher education expenses.

However, if you have an existing Roth IRA, you can 'convert' funds from a tIRA at any time.  Note:  the conversion *might* be a taxable event if there were gains on funds being converted.  I contribute the max value to my tIRA, then immediately move it to my Roth, therefore no gains, no taxable event.

[cranky_in_nyc]

Got it, thank you both!

[MDM]

In case it isn't 100% clear, see https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits.  Of course, that may or may not clarify things.... ;)

[bearkat]

As to contributing to a Roth IRA directly, don't you already exceed the cap on income?  If you can't make deductible IRA contributions, I would expect you can't contribute to a Roth IRA either.

Just to clarify for future folks (who don't like clicking on IRS links), there is quite the range of income for "tweeners" who make too much to deduct tIRA but not enough to exceed the rIRA cap. We're some of them. The gap is $118k to $184k (for full contribtuion) for married filing jointly folks. With people on this forum, I could guess there'd be quite a few people who fall in the middle.