Completed first backdoor Roth

[corn18]

Just completed converting my taxable Traditional IRA to a Roth IRA completing my first backdoor Roth. Obama wants to cut this off in 2016 so thought I should get er done. Hope it stays as it is. Would provide some much needed tax free income during retirement. I thought SS was tax free, but it turns out it isn't if you have more than $44,000 income in a given year. And my pension is taxable. And my 401k RMD's are taxable. And my taxable retirement savings account is taxable. It's no wonder I won't be able to retire until I'm 72.

Tom

[greenskeeper]

I have looked but have not done this yet.....moving a portion of my 401k each year over to a Roth and paying the taxes to get it over with and tax free when I retire

[Like2Plan]

Just completed recharacterizing my taxable Traditional IRA to a Roth IRA completing my first backdoor Roth.

Tom,
Congratulations! Question for you, though. I'm assuming you meant you did a conversion and not a re-characterization? (It makes a difference).

[corn18]

Yes, conversion.

[feh]

Just completed converting my taxable Traditional IRA to a Roth IRA completing my first backdoor Roth. Obama wants to cut this off in 2016 so thought I should get er done. Hope it stays as it is. Would provide some much needed tax free income during retirement. I thought SS was tax free, but it turns out it isn't if you have more than $44,000 income in a given year. And my pension is taxable. And my 401k RMD's are taxable. And my taxable retirement savings account is taxable. It's no wonder I won't be able to retire until I'm 72.

Tom

Of course income that hasn't previously been taxed (cap gains/dividends in taxable accounts, 401K, traditional IRA) gets taxed when you receive it. Why wouldn't it be?

[corn18]

Of course income that hasn't previously been taxed (cap gains/dividends in taxable accounts, 401K, traditional IRA) gets taxed when you receive it. Why wouldn't it be?

Are Roth IRA gains taxed when you withdraw them? I thought that was the appeal of a Roth IRA. You deposit taxable income and then all the withdrawals are tax free.

[feh]

Are Roth IRA gains taxed when you withdraw them? I thought that was the appeal of a Roth IRA. You deposit taxable income and then all the withdrawals are tax free.

You are correct - any withdrawals from Roth IRAs are tax free.

[doingitallwrong]

So long as you meet the five-year holding period, of course. (Contributions are always deductible tax-free, earnings are taxed if you take them out before the Roth has been open for five years.)

[corn18]

So long as you meet the five-year holding period, of course. (Contributions are always deductible tax-free, earnings are taxed if you take them out before the Roth has been open for five years.)

That is the bit of information that prompted me to get moving. Wanted to get the 5 year clock ticking. I don't need it in the next 5 years, so I am ok.

I think I read somewhere that once you start the 5 year clock on a Roth, then all subsequent conversions into that Roth are covered under the original 5 year clock. So my clock started in 2015 and is up in 2020. If I convert again in 2016, that is still up in 2020, etc... Does that sound right to the SA folks?

[Like2Plan]

That is the bit of information that prompted me to get moving. Wanted to get the 5 year clock ticking. I don't need it in the next 5 years, so I am ok.

I think I read somewhere that once you start the 5 year clock on a Roth, then all subsequent conversions into that Roth are covered under the original 5 year clock. So my clock started in 2015 and is up in 2020. If I convert again in 2016, that is still up in 2020, etc... Does that sound right to the SA folks?

Conversions are tricky. I don't think you are 59.5 yet, are you?
Here is a link which explains the conversions/ordering rules:

http://www.money-zine.com/financial-planning/retirement/roth-ira-5-year-rule/

"Unlike the five-year rule that applies to contributions, the five-year rule that applies to a conversion is unique to each conversion. That is to say, each conversion has its own five-year waiting period before a qualified distribution can occur."

[doingitallwrong]

That's true for contributions, but not for conversions. Each conversion has its own five-year clock. If you take a distribution of a conversion before the five years is up, the earnings are taxable and subject to a 10% early distribution penalty. (It is a first-in, first-out allocation for converted amounts, and regular contributions are distributed before conversions.)

[corn18]

Thanks for the very helpful info. I am 49, so I have 6 years until it becomes an issue. Would like to continue stuffing as much into the Roth as possible between now and retirement.

Tom

[Like2Plan]

Would like to continue stuffing as much into the Roth as possible between now and retirement.

Tom

Yes, as long as this avenue is still available I can't see the downside to doing this.

Now, when it comes time to file your taxes it can be a little tricky. Do you do your own taxes? Even if you have tax help, it is a good idea to understand the process.

[corn18]

Yes, as long as this avenue is still available I can't see the downside to doing this.

Now, when it comes time to file your taxes it can be a little tricky. Do you do your own taxes? Even if you have tax help, it is a good idea to understand the process.

I have always done my own taxes but would like to outsource that. Maybe 2016 will be the year I find a trustworthy accountant.

[Like2Plan]

I have always done my own taxes but would like to outsource that. Maybe 2016 will be the year I find a trustworthy accountant.

Okay, well here is a reference for you when the time comes. It is a step by step process with screen shots on turbotax. (I think this is updated each tax year).

How To Report Backdoor Roth In TurboTax