Author Topic: Backdoor Roth sabbatical  (Read 723 times)

firemane

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Backdoor Roth sabbatical
« on: January 08, 2019, 04:59:34 PM »
Hello all.

I am pondering if this would work: Take one year off work to travel, and have a very low income during that year due to the only income being stock dividends and bank acct yield.

During that year, take a large amount of money from a tira and convert it to a Roth IRA. Is this something that would work, or is the withdrawal from the tira itself considered part of your agi?
« Last Edit: January 08, 2019, 05:18:18 PM by firemane »

rational_dblthinker

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Re: Backdoor Roth sabbatical
« Reply #1 on: January 08, 2019, 05:24:35 PM »
The conversion will be a part of your AGI.  However, your sabbatical/low income year will give you an opportunity to convert the $ at a low tax rate.

firemane

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Re: Backdoor Roth sabbatical
« Reply #2 on: January 08, 2019, 05:28:46 PM »
So if I understand correctly. For someone in he 22% bracket: converting to Roth Anything under 39475 will be a great opportunity for the Backdoor, however anything beyond that will just be the usual tax rate or even more depending how much the conversion is?

secondcor521

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Re: Backdoor Roth sabbatical
« Reply #3 on: January 08, 2019, 05:35:26 PM »
So if I understand correctly. For someone in he 22% bracket: converting to Roth Anything under 39475 will be a great opportunity for the Backdoor, however anything beyond that will just be the usual tax rate or even more depending how much the conversion is?

Yes.  Remember that $39475 figure is taxable income, so you could add the $12K personal exemption (assuming a filing status of single) to that.  So you could Roth convert $51,475 and that last $1 would be taxed at 12%, assuming zero other income, deductions and credits.

firemane

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Re: Backdoor Roth sabbatical
« Reply #4 on: January 08, 2019, 05:39:55 PM »
Thanks guys, seems like a good opportunity to take advantage of when traveling 

appleshampooid

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Re: Backdoor Roth sabbatical
« Reply #5 on: January 08, 2019, 06:30:28 PM »
I took almost 2 years off work in my mid 20s, regret not understanding this shit back then. I could have moved a good chunk of money from my first 401(k) into a Roth at low or no taxes.

jacoavluha

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Re: Backdoor Roth sabbatical
« Reply #6 on: January 08, 2019, 10:27:21 PM »
Why would you refer to this as “backdoor.” What OP talks about is just a Roth conversion.

The so called “backdoor” Roth is a Roth conversion following a nondeductible tIRA contribution, by someone who has income over the limit for a direct Roth contribution or a deductible tIRA contribution. Such persons generally have zero balances in pretax IRA assets. Otherwise the backdoor conversion would be subject to pro rata taxation