Backdoor Roth saving strategy

[mrsdoe]

Also - should mention I expect our income to be same as last year but we might end up in the phase out area bc we are contributing much more pretax and overall to retirement and there's always a chance we don't get certain bonuses. I know you can recategorize but I'm trying to make this easy on myself.

[badgergrl]

We have standard ira accounts at vanguard. We fully fund and then convert. We haven't contributed for 2016 so I think we will do that and then contribute for 2017 and convert once.

[flygirl22]

You will have to pay taxes on the gains in a brokerage account as well so keep that in mind. I contribute to my IRA and keep it in cash until I convert. Honestly the taxes wouldn't be that much if it were invested even if it were a really good year, I just don't want to deal with it. Since it would be short term gains it would be taxed as ordinary income so whatever your tax bracket is.

[ribollita]

Apr 6, 2017 18:02:36 GMT -5 badgergrl said:

We have standard ira accounts at vanguard. We fully fund and then convert. We haven't contributed for 2016 so I think we will do that and then contribute for 2017 and convert once.

I thought the deadline to convert for 2016 was 12/30. Can anyone confirm?

[badgergrl]

Apr 6, 2017 20:11:05 GMT -5 ribollita said:

Apr 6, 2017 18:02:36 GMT -5 badgergrl said:

We have standard ira accounts at vanguard. We fully fund and then convert. We haven't contributed for 2016 so I think we will do that and then contribute for 2017 and convert once.

I thought the deadline to convert for 2016 was 12/30. Can anyone confirm?

But you can contribute multiple years at once I believe. So we can put in 11k into traditional iras tomorrow for 2016, then Next month do 11k for 2017 and convert both years at once sometime after.

[ribollita]

Apr 6, 2017 20:27:14 GMT -5 badgergrl said:

Apr 6, 2017 20:11:05 GMT -5 ribollita said:

I thought the deadline to convert for 2016 was 12/30. Can anyone confirm?

But you can contribute multiple years at once I believe. So we can put in 11k into traditional iras tomorrow for 2016, then Next month do 11k for 2017 and convert both years at once sometime after.

I was under the impression you could only convert $5500 per year. But I could be wrong!

[kadams767]

You can convert any amount at any time. Contributions are limited to $5,500 per tax year, per person, and can be made until 4/15 of the current year to count as prior year contributions.

[badgergrl]

Apr 6, 2017 20:35:05 GMT -5 kadams767 said:

You can convert any amount at any time. Contributions are limited to $5,500 per tax year, per person, and can be made until 4/15 of the current year to count as prior year contributions.

Thank you! I was getting scared I messed up my strategy. We find our iras with bonus money that we don't get til January.

[mrsdoe]

Apr 6, 2017 18:25:20 GMT -5 flygirl22 said:

You will have to pay taxes on the gains in a brokerage account as well so keep that in mind. I contribute to my IRA and keep it in cash until I convert. Honestly the taxes wouldn't be that much if it were invested even if it were a really good year, I just don't want to deal with it. Since it would be short term gains it would be taxed as ordinary income so whatever your tax bracket is.

Is this just filling out a 1099-int?

This is only subject to federal and maybe state income tax right? Medicare is only wages or all income?

[flygirl22]

Apr 7, 2017 0:28:56 GMT -5 mrsdoe said:

Apr 6, 2017 18:25:20 GMT -5 flygirl22 said:

You will have to pay taxes on the gains in a brokerage account as well so keep that in mind. I contribute to my IRA and keep it in cash until I convert. Honestly the taxes wouldn't be that much if it were invested even if it were a really good year, I just don't want to deal with it. Since it would be short term gains it would be taxed as ordinary income so whatever your tax bracket is.

Is this just filling out a 1099-int?

This is only subject to federal and maybe state income tax right? Medicare is only wages or all income?

For the IRA you will get a 1099R, when you do your taxes next year you will want to fill our form 8606, that will calculate the amount of tax owed on the growth. This is much easier on your taxes if all contributions are completed and converted in the same year, otherwise the contribution basis can get very confusing.

 Correct, nothing would be subject to payroll taxes, just federal and state income taxes.

[flygirl22]

mrsdoe,Also, If you use tax software there are a ton of tutorials that walk you through the process that also clear up some of the taxation questions. Example for turbo tax: thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html

[ohgillian]

Apr 6, 2017 20:31:52 GMT -5 ribollita said:

Apr 6, 2017 20:27:14 GMT -5 badgergrl said:

But you can contribute multiple years at once I believe. So we can put in 11k into traditional iras tomorrow for 2016, then Next month do 11k for 2017 and convert both years at once sometime after.

I was under the impression you could only convert $5500 per year. But I could be wrong!

No, I don't think there's a limit. You're basically only limited by what you can afford the taxes on. I won't forget the time DH was doing the taxes and he called me into his office all shocked. "What did you DO this year??" lol. We had discussed it but he'd forgotten. 

[kadams767]

Apr 7, 2017 7:58:05 GMT -5 ohgillian said:

Apr 6, 2017 20:31:52 GMT -5 ribollita said:

I was under the impression you could only convert $5500 per year. But I could be wrong!

No, I don't think there's a limit. You're basically only limited by what you can afford the taxes on. I won't forget the time DH was doing the taxes and he called me into his office all shocked. "What did you DO this year??" lol. We had discussed it but he'd forgotten. 

Yep, this is why we only do one.  DH has about $40k in a traditional IRA and I cannot stomach paying taxes on another $40k right now to convert it.  Mine only had about $5k when I did it, so it was much easier to bite the bullet.

[badgergrl]

Apr 7, 2017 7:58:05 GMT -5 ohgillian said:

Apr 6, 2017 20:31:52 GMT -5 ribollita said:

I was under the impression you could only convert $5500 per year. But I could be wrong!

No, I don't think there's a limit. You're basically only limited by what you can afford the taxes on. I won't forget the time DH was doing the taxes and he called me into his office all shocked. "What did you DO this year??" lol. We had discussed it but he'd forgotten. 

But you only owe the taxes if you are converting non taxable iras. So when you Backdoor a Roth it shouldn't change your tax liabilities at all- unless you had non taxed contributions you converted at the same time.

[Mimi]

Apr 6, 2017 20:35:05 GMT -5 kadams767 said:

You can convert any amount at any time. Contributions are limited to $5,500 per tax year, per person, and can be made until 4/15 of the current year to count as prior year contributions.

If I contribute the $5500 today, and the $ shows on my account on Monday, does that mean I can do the conversion on Monday?

[kadams767]

Apr 13, 2017 9:53:42 GMT -5 Mimi said:

Apr 6, 2017 20:35:05 GMT -5 kadams767 said:

You can convert any amount at any time. Contributions are limited to $5,500 per tax year, per person, and can be made until 4/15 of the current year to count as prior year contributions.

If I contribute the $5500 today, and the $ shows on my account on Monday, does that mean I can do the conversion on Monday?

I believe so, yes.  But you don't need to convert Monday to meet any sort of tax deadline, if that is the reason you are asking.  Just the contribution needs to be made by Monday to count for 2016.