Do I need to go back and file an 8606 for 2012 taxes? Few plans offer after-tax contributions. Harry Sit implies in his reply that my wife would need at least $400for a sole proprietorship to qualify for setting up a solo 401k but you seem dubious. You are right JIm. You can still do a 2018 Backdoor Roth IRA contribution. Maybe its on the site and I just haven’t seen it. He’s saying your basis is backwards because the $40K is the basis. Notify me of followup comments via e-mail. Whoever told you that is ignorant at best. It is taxable. If the answer to those is all yes (and of course it is) then a Backdoor Roth IRA instead of investing in taxable makes sense. Sorry for the confusion. I contribute after-tax dollars to my 401k so that I can do the mega backdoor roth strategy. – The plan allows in-service withdrawals to an IRA or Roth IRA, and i can specify i just want to move out the after- tax portion. It isn't on the form your IRA custodian sends to the IRS (1099-R) either. my current 401K is with vanguard. However, the last conversion out of that account was in June 2012 (for some reason we did it mid-year then), 18 months and 12 days earlier and the traditional IRA was missing, so we had to go through the trouble of reopening. Once again WCI, great post. Two questions. Also, don’t forget 5500 for your spouse, which doubles all the figures Jim just mentioned. If all IRAs are included in the pro rata calculation, and I move money into a Roth IRA, will I have to figure out where to stash it next year, so I can backdoor again? I don’t see such an advantage for $5500/yr to cause me to essentially forgo my SEP when I get 51k tax advantaged space. This is a great deal for someone who has limited tax-protected (and asset-protected) accounts but would like to save more for retirement. Max out the employee contribution ($17,500) in either a Roth or traditional tax-deferred manner. I'm wondering about pros and cons of the SEP IRA and the Solo 401k (and whether they can be combined). Most plans, unfortunately, don’t allow inservice rollovers. 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? The Roth IRAs are often taken for granted. So we a left with case #1, which is completely dependent on the employer. As far as your gift is concerned, I’d check if you could make some after-tax contributions to your 403(b) and try to do that after maxing out your pre-tax 403(b), Roth IRA, HSA, and contributing whatever amount to your taxable account that makes you feel comfortable. 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. 2) In-service withdrawals are definitely an option and can be written into a plan document. Whoever you talked to at Vanguard is apparently not familiar with the pro-rata calculation demanded by line 6 of Form 8606. I will convert in either of the scenarios below…. He has spent more time than I have understanding the Mega Backdoor Roth. Author ... To simplify what I have said, a traditional IRA equals a ROTH IRA for the first doubling of your money, i.e for 10% interest it takes 7.2 years to double. What to do with your year-end bonus. I do tax-deferred 401k contributions and have a sizable tax deferred account. Each year, I make my Traditional IRA contribution on January 2, then convert to a Roth IRA the next day. Your wife doesn’t need to earn $14k before she can open a solo 401k. You may be able to put in more if you write a check. I have a SEP IRA, my husband doesn’t. 6) Moderate interest debt Key Takeaways For 2019, you can contribute … Page 1 (below) shows a “distribution” from your non-deductible IRA. Was “shortly after” also in December 2013? and also what exactly do you do – step for megaroth- what does the TPA exactly do- full service. I have not been able to do Back Door roth ira contributions because of this traditional IRA. + 5500 Back door entry roth after tax at Vanguard. – No recharacterization allowed: “once the account is converted it stays converted” Who knew the minimum to open a solo 401k was so small?! Just convert it now and make sure you fill out your 8606 right. I have 3 different Roth IRAs- one at Vanguard, one at Bridgeway, and one at Lending Club. Then he can backdoor the remaining 5k at no tax liability. I can’t find a single Vanguard NTF fund at TD Ameritrade…there are no-commission ETF’s and no-load mutuals but I can’t find any Vanguard NTF’s…I was wanting to do what you are suggesting there, but was put-off by TDA’s $49.99 fee for No-Load funds (which most the Vanguard’s are). I was quite peeved. I suppose that would be an expense. Remember the goal isn’t to reduce taxes, it is to maximize your after-tax money (at least on a risk-adjusted basis. For most households, the Roth IRA contribution limits in 2020 and 2021 will be the smaller of $6,000 or your taxable income. Prior to this company I had been saving 6% into my 401k, maxing out my Roth IRA contribution, and saving some for an emergency fund. This was not my initial understanding,I questioned them several times about this, they seemed confused/frustrated with my question but in the end guaranteed me that my 2018 SEP IRA would not affect Pro-Rata calculation for back door roth contribution in 2019. The key to not closing the account is to leave a little of money behind ($1) on that account before doing a back door conversion. “It … I have been making backdoor IRA contributions the past few years. As an individual contractor what will be my best option for purchasing health insurance for family? I had a 403 B that was transferred to a traditional IRA years ago from my previous employer. So, I’m only going to be able to do 21.5k per year to this (ie 17.5 pre-tax + 13 pension + 21.5 after-tax = 52k). 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. On 3, why would it be illegal if they are the employee in 1 in achieving this. In dollars, let’s take a look at this example. Looks like you’re right about just taking out the after-tax stuff. That’s useful if you’re in college and probably paying no taxes anyway. Simone says, “I’ve maxed out my retirement accounts, but still have $14,000 that I want to invest this year. made your 2020 contribution in 2021). 4) Tax-deferred accounts of any type (401K, 403B, 457, DBP etc) Every year or two, Vanguard changes their process slightly. If you convert half of the account, you pay taxes on $10,000, and $2500 comes along tax-free. By tax-free he just means that’s your basis. Make your 2014 contribution, then convert the whole thing. If your retirement plan at work is burdened by high fees and expenses or has a lackluster investment lineup, it may not be worth going above and beyond the maximum contribution for which you can get the company match. However, I wouldn’t add 529s to it because they’re aimed at a completely different goal. It doesn’t cost money to set up an individual 401K. You are better off just to keep it pre-tax and convert at a later time. There used to be concern that the IRS would have a problem with the backdoor Roth due to an IRS rule called The Step Transaction Doctrine. Made a 2020 IRA contribution (reported on 2020 8606), Did a Roth conversion of that contribution (reported on 2021 8606), Made a 2021 IRA contribution (reported on 2021 8606), Line 1 – That's the money you contributed for 2021, Line 2 – This is your basis. 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