How can we rollover a traditional IRA into a back door Roth IRA?
My husband transferred his 401k to a traditional IRA in Nov 2015. Can he still transfer it to a back door IRA?
Yes. Anyone, regardless of income, is eligible to convert his or her Traditional IRA into a Roth IRA. You can do this quickly and simply with a low-cost ETF portfolio in a managed account at Betterment (after initial setup, add a Roth IRA account then start a rollover).
Important things to note:
- If you would like to complete a conversion for the 2017 tax year, the IRS requires that the conversion completes by December 31, 2017. Please note, if the last day of the year falls on a weekend, the conversion needs to be completed during market hours on the last business day of the year.
- Betterment does not withhold taxes for you, because it reduces the amount of money that can grow tax-free in your Roth IRA.
- Generally, any funds you convert from Traditional to Roth which were previously deducted will be subject to income tax. Since Betterment cannot provide specific tax advice, we recommend you consult a tax advisor and the IRS Publication 590.
Please note that if you live in Michigan, there are special requirements for completing your conversion.
You can now do backdoor Roth strategy. You can transfer some or all of your existing balance in a traditional IRA to a Roth IRA, regardless of income (but income-eligibility restrictions still apply to current-year contributions). The question is is it a good idea to do so. I would create a plan that allows for the most efficient taxation of getting the ideal amount you would like to get over to the Roth Ira. Few keys to think of are,
- You earn too much to contribute to a Roth in the current year, but you expect to have a higher tax rate during retirement.
- No other tax consequences are triggered if you add additional taxable income that year. I would work closely with your account or make sure to plug in the scenarios into your tax software if you do this without a tax professional.
In the end, I find that doing portions slowly is usually not a bad idea especially if there decrease in income or you are expecting a fair increase of income in the future if that is the case take advantage of that window to do this most efficiently!
I think this is one of the smartest and most overlooked strategy! Yes, you can still convert your traditional IRA to a Roth IRA. You want to make sure you have consulted with your tax preparer to hold out enough for the taxes.
Almost anyone who makes an income above the IRS’s threshold can do the back-door IRA, but the question is if you would like to pay the tax upfront. Ideally you want to take your time to gradually convert the rollover IRA to the Roth so that you can stay within your same tax bracket each year.
A back-door Roth IRA contribution refers to a situation in which your income exceeds the Roth maximum. What you do in that case is to contribute 5500 per year for yourself and 5500 for your spouse (6500 if you are over age 50) into a non-deductible traditional IRA. You then immediately convert the money into a Roth IRA. Since the original contribution was non-deductible, the conversion is non-taxable.
In your situation you are supposed to transfer the 401(k) into two parts: 1) the pre-tax amount into a traditional IRA, and 2) the after-tax amount into a Roth IRA. If this was done incorrectly then it may be too late to change it, but you can ask. Your broker with the traditional IRA may allow the original after-tax amount to be moved into a Roth IRA, but act soon.
At any time you can convert assets from a traditional IRA to a Roth IRA. This is called a Roth conversion. The best plan is to do this in a way which uses up your current federal tax bracket, so if you can have another 60 thousand of income before you move from the 28% into the 33% federal tax bracket then you should convert 60 thousand dollars for that tax year. Always convert the most depressed shares at any given time which you think will rebound the most; you will pay taxes based upon their valuations at the time that they are converted and all future gains in your Roth IRA will be tax-free. If the shares instead decline further then you can recharacterize (i.e., undo) the conversions back into a traditional IRA and then convert them later on at a low price.