Author Topic: Roth conversion advice  (Read 556 times)

Tumbler

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Roth conversion advice
« on: January 04, 2019, 08:56:20 AM »
I'm looking for some advice about my current situation. First a little background. I have 3 retirement accounts:

1) Company sponsored 401k with Trowe Price
2) tIRA with Vanguard
3) Roth IRA with Vanguard

My current salary places me outside the income limits for contributing to either the tIRA or the Roth. I'd like to set up a backdoor roth contribution but my understanding is to do this I cannot have any pre-existing tIRA accounts. Am I correct here? The tIRA only has ~$6k in it...should I do a "roth conversion" with those funds and take the tax hit so that I can carry out backdoor roth contributions from here forward?

Thanks in advance for the advice!

EvenSteven

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Re: Roth conversion advice
« Reply #1 on: January 04, 2019, 09:11:46 AM »
Quote
but my understanding is to do this I cannot have any pre-existing tIRA accounts. Am I correct here?

Not exactly. You can look up the pro rata rule for backdoor Roths, but basically the pre-tax and post-tax money that gets converted is in proportion to what is in your IRAs. For example if you have 6,000 of pretax traditional ira, and 4,000 of post-tax ira, whatever you convert will incur taxes on 6/10ths of the amount.

You would have to look at your overall situation to say if this is a good idea.

You should also note that if your work 401K is pretty good, most plans will allow you to roll over your pretax traditional IRA into your 401K with no tax consequences.

appleshampooid

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Re: Roth conversion advice
« Reply #2 on: January 04, 2019, 09:15:32 AM »
Quote
but my understanding is to do this I cannot have any pre-existing tIRA accounts. Am I correct here?

Not exactly. You can look up the pro rata rule for backdoor Roths, but basically the pre-tax and post-tax money that gets converted is in proportion to what is in your IRAs. For example if you have 6,000 of pretax traditional ira, and 4,000 of post-tax ira, whatever you convert will incur taxes on 6/10ths of the amount.

You would have to look at your overall situation to say if this is a good idea.

You should also note that if your work 401K is pretty good, most plans will allow you to roll over your pretax traditional IRA into your 401K with no tax consequences.
Yep, I am doing this right now (rolling my tIRA into my work 401k). It's generally not worth it if the fund selection sucks, but if you have decent funds then it's a good way to unlock the backdoor Roth without worrying about the pro-rata rule.

Tumbler

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Re: Roth conversion advice
« Reply #3 on: January 04, 2019, 11:55:12 AM »
Thanks for the advice. I just checked and I am able to roll over an individual IRA into my 401k. Rolling it over sounds like my best option to free up the possibility of a backdoor roth.