Author Topic: Too late to set up IRA for 2014 tax year?  (Read 3751 times)

retireatbirth

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Too late to set up IRA for 2014 tax year?
« on: March 04, 2015, 07:32:10 PM »
Hey everyone,

I'm trying to max out my savings and was wondering if I can still ESTABLISH and CONTRIBUTE to a traditional IRA account for 2014 with non tax-deductible dollars (my income is above the limit). Here is my plan:

1. Set up a traditional IRA ASAP and contribute $5,500 with after-tax dollars to the account.
2. At some point in the future, do Roth conversions.

I have a lot of questions on this since I've never set up an IRA before:

1. Is it too late to establish a traditional IRA for the 2014 tax year? My research seems to show that Roths need to be established by Dec. 31, but it appears traditionals can be established right up to Apr 15.

2. How are pre-tax and aftertax dollars kept track of? I'm going to use Fidelity - will they ask me when I deposit the money or do I just keep track myself? Do I just deposit and by not taking the tax deduction, that's enough? I plan for my income to stay above the limit so my entire traditional IRA would be aftertax dollars waiting to be converted to Roth.

3. Can I just deposit any $5,500 I have lying around into the account or does it have to somehow come out of my paycheck or something?


Thank you so much!

nanu

  • Bristles
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Re: Too late to set up IRA for 2014 tax year?
« Reply #1 on: March 04, 2015, 07:48:38 PM »
You can establish and contribute to a Roth up to April 15th as well (I did it last week actually), not just tIRAs.
If you can't deduct the contribution, and can't just contribute to a Roth normally, then you should
contribute a non-deductible contribution to a traditional IRA and then immediately convert it to a Roth,
since I don't think there's any benefit in waiting and doing this later (maybe unless you already have some post-tax tIRA money, but you said you don't...)

I don't know how pre-tax and aftertax dollars are kept track of

The money doesn't need to "come out of your paycheck" or anything, but you do need to have at least the amount you're going to deposit on a W-2 for 2014.

retireatbirth

  • Bristles
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Re: Too late to set up IRA for 2014 tax year?
« Reply #2 on: March 04, 2015, 08:11:27 PM »
Also it looks like the pro rata rule comes into effect here since I have a rollover IRA already?

nanu

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Re: Too late to set up IRA for 2014 tax year?
« Reply #3 on: March 04, 2015, 08:37:35 PM »
You said that "I've never set up an IRA before"... So do you currently have any IRAs or not?

If you do have pre-tax money in some tIRA(s), then yes, you will pay taxes based on how much you currently have there vs the post-tax money.
If you don't have any pre-tax IRA money, then you won't pay any taxes on the conversion, as far as I understand it (though I'm no expert and never done it myself).

retireatbirth

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Re: Too late to set up IRA for 2014 tax year?
« Reply #4 on: March 04, 2015, 08:43:50 PM »
You said that "I've never set up an IRA before"... So do you currently have any IRAs or not?

If you do have pre-tax money in some tIRA(s), then yes, you will pay taxes based on how much you currently have there vs the post-tax money.
If you don't have any pre-tax IRA money, then you won't pay any taxes on the conversion, as far as I understand it (though I'm no expert and never done it myself).

I don't currently, but I have a rollover in process. I guess I can just count that for 2015 though to avoid any tax for 2014.

MDM

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Re: Too late to set up IRA for 2014 tax year?
« Reply #5 on: March 04, 2015, 08:44:19 PM »
1. My research seems to show that Roths need to be established by Dec. 31
Not true.  See http://www.irs.gov/publications/p590a/ch02.html#en_US_2014_publink1000231022:
Quote
When Can You Make Contributions? 
You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

Quote
3. Can I just deposit any $5,500 I have lying around into the account or does it have to somehow come out of my paycheck or something?
Doesn't have to "come out of [your] paycheck" per se, but you have to have earned that amount during the year.

If your AGI is under the Roth limit then ignore the back door and just do a Roth.

retireatbirth

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Re: Too late to set up IRA for 2014 tax year?
« Reply #6 on: March 04, 2015, 08:54:28 PM »
1. My research seems to show that Roths need to be established by Dec. 31
Not true.  See http://www.irs.gov/publications/p590a/ch02.html#en_US_2014_publink1000231022:
Quote
When Can You Make Contributions? 
You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

Quote
3. Can I just deposit any $5,500 I have lying around into the account or does it have to somehow come out of my paycheck or something?
Doesn't have to "come out of [your] paycheck" per se, but you have to have earned that amount during the year.

If your AGI is under the Roth limit then ignore the back door and just do a Roth.

My confusion on Roth is whether the account needs to be established by Dec 31. I understand you can make contributions to an existing account up until Apr 15.

http://www.rothira.com/roth-ira-rules

Cant find confirmation on IRS site

Gin1984

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Re: Too late to set up IRA for 2014 tax year?
« Reply #7 on: March 04, 2015, 09:01:43 PM »
1. My research seems to show that Roths need to be established by Dec. 31
Not true.  See http://www.irs.gov/publications/p590a/ch02.html#en_US_2014_publink1000231022:
Quote
When Can You Make Contributions? 
You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

Quote
3. Can I just deposit any $5,500 I have lying around into the account or does it have to somehow come out of my paycheck or something?
Doesn't have to "come out of [your] paycheck" per se, but you have to have earned that amount during the year.

If your AGI is under the Roth limit then ignore the back door and just do a Roth.

My confusion on Roth is whether the account needs to be established by Dec 31. I understand you can make contributions to an existing account up until Apr 15.

http://www.rothira.com/roth-ira-rules

Cant find confirmation on IRS site
You can set up and fund a Roth for 2014 till April 15th of 2015.

nanu

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Re: Too late to set up IRA for 2014 tax year?
« Reply #8 on: March 04, 2015, 09:04:41 PM »
As I said in my first post - I created and funded a Roth just last week with Fidelity for 2014 without any issues...

retireatbirth

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Re: Too late to set up IRA for 2014 tax year?
« Reply #9 on: March 04, 2015, 09:16:33 PM »
Thank you all for your help!

retireatbirth

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Re: Too late to set up IRA for 2014 tax year?
« Reply #10 on: March 05, 2015, 03:40:41 PM »
Well I did some more research into this and it looks like the conversion is taxed if you don't do it in the calendar year. Form 8606 has specific line items that separate 2015 contributions from 2014 contributions. I think I'll wait until next tax year to do this.