Author Topic: tIRA for deduction, then convert to Roth?  (Read 1603 times)

Krnten

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tIRA for deduction, then convert to Roth?
« on: September 03, 2015, 11:29:42 AM »
I'm not eligible for a tIRA deduction, but is it somehow cheating it you contribute to a tIRA for the deduction then immediately convert to a Roth?  What if you do the tIRA contribution on the last day of the year (or would it be April 15) and then convert on Jan 1 or April 16?

This must be a basic question, I'm just curious.

dandarc

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Re: tIRA for deduction, then convert to Roth?
« Reply #1 on: September 03, 2015, 11:32:48 AM »
The conversion is taxed, so no it is not cheating any way you look at it. 

If you convert it in the same year, you've "undone" the deduction anyway. 

If you contribute for 2015 and convert in 2016, you get a deduction in 2015, but are taxed on that in 2016.  Which is exactly the way these tax-deferred accounts are supposed to work.

Krnten

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Re: tIRA for deduction, then convert to Roth?
« Reply #2 on: September 03, 2015, 11:42:19 AM »
Just the gains are taxed though, right?  So I could fund a deductible tira on the last tax day to do so, take the deduction, and convert to a Roth the next day paying little or no taxes because little or no gains, all without undoing the deduction?


dandarc

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Re: tIRA for deduction, then convert to Roth?
« Reply #3 on: September 03, 2015, 11:45:02 AM »
No.  The whole thing is taxed if you make a deductible contribution.

You seem to have the back-door Roth IRA method confused with a standard IRA conversion.

forummm

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Re: tIRA for deduction, then convert to Roth?
« Reply #4 on: September 03, 2015, 11:45:43 AM »
Usually people wait until they have a huge drop in income (like after retiring) to do Roth conversions. That's how you can save on the taxes.

Just the gains are taxed though, right?  So I could fund a deductible tira on the last tax day to do so, take the deduction, and convert to a Roth the next day paying little or no taxes because little or no gains, all without undoing the deduction?

No, if you convert a deductible TIRA contribution into an after-tax Roth contribution, you are taxed on the full amount of the dollars converted, regardless of whether that amount has increased or decreased since you contributed it.

MDM

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Re: tIRA for deduction, then convert to Roth?
« Reply #5 on: September 03, 2015, 02:17:34 PM »
I'm not eligible for a tIRA deduction
So I could fund a deductible tira on the last tax day to do so

You either are eligible to take the deduction or you aren't.  See http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits.

Krnten

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Re: tIRA for deduction, then convert to Roth?
« Reply #6 on: September 03, 2015, 03:25:43 PM »
 I am not eligible.  I was wondering about this last night and thought I would ask here.  Question answered, thanks!