The term IRA stands for individual retirement arrangement, not account like most people assume. Thank you again! You usually have to call your IRA provider to get this done, but it's no big deal. Also , I have heard that I am subject to penalty if I open a roth ira if my employer is already providing a 403B ? Just a viable business with an EIN as far as I know. More, you report it on your 8606 and pay taxes on it. You could do it all in 2018. But consider $5500 per year contributed to a Roth IRA for 30 years vs $5500 per year invested in a taxable account. Next, convert the non-deductible traditional IRA to a Roth IRA by transferring the money from your traditional IRA into your Roth IRA at the same fund company. Each year, I make my Traditional IRA contribution on January 2, then convert to a Roth IRA the next day. Is there actually a minimum amount of earnings you must have to open a Solo 401K? That will take you to the standard Vanguard “Review and Submit” screen. Any further ideas on how to handle my wife’s non-deductible IRA contributions since her current deductible IRAs present a conversion problem vis-a-vis the ‘pro-rata rule’? When double-checking your tax preparer's work, you want to concentrate on lines 2, 14, 15c, and 18, and make sure they're a very small amount, like zero, and not a very large amount, like $6,000. My question is this: do I need to submit an amended return to correct just the basis discrepancy? But here goes…. The Marginal Value of the Backdoor Roth. If you understand the Backdoor Roth IRA, these little tweaks are no big deal. No. Reverse the backdoor Roth conversion? You may be able to put in more if you write a check. Thanks! Vanguard won’t accept these funds into my current 401 K. How or where can I eliminate this traditional IRA so I can do my backdoor ROTH,. So what if you screwed this one up? One you hit submit, it will take you to the confirmation page. You can either find another 401(k) (at a job you have now, a job you can get, or an individual 401(k) opened at Fidelity or etrade) or you can convert the entire amount to a Roth IRA. Or recommended CPA that could potentially help me with this.. it seems daunting to me.. The usual fix to this error is to file a 1040X (Amended Tax Return) and a new Form 8606. But apart from complicating my tax forms and having to pay what I’m hoping is just a small tax, is there a huge problem with having roughly $10 in my Traditional IRA on December 31st year after year and am I unduly violating the pro rata rule? The account did sit for a couple weeks while waiting for verification causing some growth (around 8 bucks) and accidentally converted it all to a Roth. What gets people anxious is finding something on Line 2a “Taxable amount”. Do I need to fill out the Form 8606 now that I’m doing the conversion a year late? You can still convert it now. Employers have nothing to do with IRAs. your 2019 tax return due in April 2020. No big deal, it just makes your paperwork more complicated. Apart from having to pay what I’m guessing is a small tax, is there a problem with having $10 in my Traditional IRA on December 31st year after year and am I violating the pro rata rule? 2. If it is not, have the IRA provider send you a new, correct form, either with $0 in 2a or the box in 2b checked (usually the latter). After reading it, I realized I made two mistakes.. My question is, can I open another trad IRA account, put post-tax money in it, and just backdoor this new one to a Roth. I see how that worked out. You pay the taxes on that money up front either way. We should all get a 2013 1099-R this month. I was born at night, but it wasn’t last night. We’ve avoided the back-door ROTH because my wife and I both have substantial SEP-IRAs from an S-corp with other employees. Wow, this is crazy timely. After the transfer from Vanguard to Fidelity, I believe I would only have $16,500 (non-deductible total) remaining at Vanguard. So I'm going to just add the $6,000 to that fund. Since these folks have never filled out a Form 8606 (or apparently read the instructions) they assume that for a 2018 contribution they need to have a balance of $0 at the end of 2018, even if they didn't do the conversion step until 2019. Pairing that with the Cash Rewards CC gets you 3.5% back on groceries/wholesale clubs and 5.25% back on gas (up to $2500 per quarter). Since I missed the 2019 conversion of the 12k traditional, I’m trying to figure out what tax I pay on the whole thing… Sure, that’s a great way to isolate the basis. It’s actually pretty aggressive to be 85/15. If you fill out the paperwork right you’ll only owe taxes on $8. It pushes routine risks into something capable of producing ruin. This eliminated the “Roth IRA Conversion Horserace” technique for tax reduction. You’re past the deadline to recharacterize, so I think you’re right that you’ll need to take a distribution and file an amended return. If you don't do it right, you'll pay taxes twice on your Backdoor Roth IRA contribution. If you did a backdoor Roth in 2012, you should have done a 2012 8606 9 months ago. I reopened my wife’s and put auto investments into each one, hopeful they won’t close an account early if it has an auto investment heading into it. And no, you need to get rid of all traditional, SEP, and SIMPLE IRAs in order to avoid the pro-rata issue. I incorrectly reported the backdoor Roth (I used TurboTax) and it didn’t generate 8606. Don't worry about it. My plan is to call Vanguard tomorrow and request that they recharacterize the 6k contribution from a tIRA contribution a Roth IRA contribution. It’s only closing credit accounts that affects it. But in the end, a couple of days are no big deal as long as you remember to come back and complete the process. Then make sure the 8606s are right. I assumed we couldn’t hide the SEP-IRAs in a individual 401k since we have employees and I hadn’t thought of the new EIN. I’m continually updating the data as readers tell me about it. If it isn’t, you have to either leave it there or withdraw it and pay the taxes on it. Note that Turbotax may fill this out a little differently (may leave lines 6-12 blank) but you end up with the same thing. d. Looks like in 2014, I contributed to Roth directly (not back door), without realizing the income limit restriction – since opening & contributing didn’t check for AGI. The 1099 just says what conversions you did in 2019. We did a IRA contribution for my wife’s 2018 IRA in 2019 and did conversion in 2019 (not smart). Refinance Medical School Loans & Consolidation Guide, Late Contributions to the Backdoor Roth IRA, Calculating the Value of Your Backdoor Roth Contributions, Celebrating Ten Years With The Backdoor Roth IRA, Best Retirement Accounts For Independent Contractors, Financial Educator of the Year Award - Call for Submissions, Backdoor Roth IRAs and Why You Should Be Funding Them. If you are self-employed, you should be able to open a solo 401(k) that you can roll the rollover IRA into if you like. The next part of the Backdoor Roth IRA is done months later when you (or your accountant) fill out your IRS Form 8606 on your taxes. Here is my article on individual 401(k)s but be aware that their websites often say one thing and their representatives another. I managed to do that with my TSP money a few years ago. I mean, we often lump it all together as one process but in reality a Backdoor Roth IRA is a two step process (contribution and conversion) and the steps can be divorced/separated in time. I talked to Merrill Edge about this today.. sounds pretty seamless except that they told me if I didn’t leave $50 in the traditional IRA that they would close it in 6 mo. I fear I have really screwed up my attempt at the backdoor Roth conversion. (My auto investment is $5500 on December 6 each year). All IRAs are considered together, no matter where you hold them. Just want to make sure, that once the TIRA gets recharachterised as Rollover at Fidelity, I can do backdoor in 2018 thru the then empty Vanguard TIRA without pro-rata consequences? I am not very tax savvy and may have gotten penalized without even knowing. Does it really matter? Also available on Audible! Any way you could add a “print” button to make it easier to print out your articles in an “easy to print” format? Form 8606 completed: Line 15: $0, Line 18: $2700, put that in 1040X – owing tax for the $2700. Am I wrong on these points? Whoever you talked to at Vanguard is apparently not familiar with the pro-rata calculation demanded by line 6 of Form 8606. Perhaps the best explanation is the cream in the coffee example. A mega backdoor Roth means making non-Roth after-tax contributions to a 401k-type plan and then taking the money out (with earnings) to a Roth IRA or moving it to the Roth account within the plan. I’m not trying to be argumentative, but a Roth isn’t always the best strategy for high income earners. I know I’m not paying commissions for Vanguard funds in my HSA at TD Ameritrade as well. Straighten out your financial life today! Thank you so much for your prompt reply. For now its not a reality. Yes I also called Fidelity where the 401k is and they said it could be done. Well, it's going to vary by the person and how much disposable cash they have. Many thanks! 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