Author Topic: Backdoor Roth IRA with Traditional IRA Confusion/Advice  (Read 836 times)

BiggerFishToFI

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Backdoor Roth IRA with Traditional IRA Confusion/Advice
« on: January 09, 2018, 10:46:41 AM »
Possibly this year and most likely next year we will exceed the income limits for contribution to a Roth IRA.

I currently have a traditional (deductible) IRA valued around 16k. Don't want to roll it into my current employers 401k due to investment choices (If that's even possible?)

Should I look at converting this to a Roth IRA to avoid the pro-rata rule? I don't fully understand it but think that to do the backdoor Roth I would have to pay tax on a portion of my traditional deductible IRA and convert it to a non-deductible IRA?

Thanks in advance!

MDM

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Re: Backdoor Roth IRA with Traditional IRA Confusion/Advice
« Reply #1 on: January 09, 2018, 11:03:42 AM »
Should I look at converting this to a Roth IRA to avoid the pro-rata rule?
Yes, look at it - just look closely because it may or may not be a good thing to do.

Quote
I don't fully understand it but think that to do the backdoor Roth I would have to pay tax on a portion of my traditional deductible IRA and convert it to a non-deductible [Roth] IRA?
Yes, as edited.

With the current $16K balance, if you contribute a non-deductible $5500 to tIRA this year, and then convert $5500 to a Roth IRA, the IRS will deem that $16K/($16K + $5500) = 74.42% of the $5500 is taxable this year.

See Backdoor Roth IRA - Bogleheads for more.