First 2016 Roth contributions made!

[disneysteve]

I just sent in $1,625 to each of our Roths. That's 1/4 of the annual total (we're both over 50) since it's almost the end of the first quarter of the year.

I was holding off contributing until taxes were done and I made sure we didn't owe a bunch of money. Since we actually ended up with an over $3,000 refund, I took that money and sent it to the Roths.

[msomnipotent]

Congrats!

That is on my list of things to start doing. Everything is on hold until we figure out where we will be living and what the mortgage will be. After that, I intend to max out the retirement savings. I feel we are way far behind because we had to cash one out when we went without a salary for a long while, but we have been working to catch up.

[FrankFacts]

Congrats! I need to do mine soon...

[QuarterMillionMan]

I regretted not sending mine immediately at the beginning of 2016 when the spot price of gold was $1058. I have a gold Roth IRA and intended to get $6500 worth (I'm 50) of gold bullions but I procrastinated too long and now gold is about $1225. I had the funds available but just didn't pull the trigger fast enough. Instead I'm intending to just invest in an index fund. However if gold goes back to down to the $1058 level I won't hesitate again.

[bjl584]

I DTA my contributions. The first of every month $458 is deposited.

[disneysteve]

I DTA my contributions. The first of every month $458 is deposited.

I typically get the money in as soon as I can. The sooner it is in the tax shelter of the Roth, the better. This year I was holding off because I thought we might owe taxes so I was hoarding cash. Once taxes were done, I sent money in.

On the flip side, as I mentioned in another thread, I may not put in any more because there is an outside chance that our income might top the cut off this year. I won't know until the fall.

[corn18]

I got my 2016 traditional IRA contributions in for the year and then converted them to a Roth. I was dollar cost averaging into the tIRA's, but this year I set aside $12k of my bonus to do it all at once. Much simpler with the conversion.

Tom

[Singuy]

I got my 2016 traditional IRA contributions in for the year and then converted them to a Roth. I was dollar cost averaging into the tIRA's, but this year I set aside $12k of my bonus to do it all at once. Much simpler with the conversion.

Tom

Okay I am extremely confused about how the conversion is being taxed.

My work has a separate 401k so I contributed with post tax money into an IRA account(in which I get no tax deductions from at the end of the year). If I convert this amount from IRA to Roth, I pay an additional tax on the post tax dollars?

Just wondering if I will be double taxed here. They never make this easy...

[disneysteve]

I got my 2016 traditional IRA contributions in for the year and then converted them to a Roth.

I've never done a Roth conversion. How does that work? I'd be contributing to a non-deductible traditional IRA so I don't think there would be much if any taxes due upon conversion. Maybe I ought to look into that for this year. That way I wouldn't have to wait until 2017 to make my contribution.

[corn18]

It's called a back door Roth and it can be simple or very complex. It's simple for me because I do not have any deductible traditional IRA contributions or earnings anywhere in my portfolio. If I did, there would be a prorata rule applied and it gets very messy.

I also contribute post tax dollars to my 401k and roll that into a Roth IRA. That is simple for me as well because my plan allows me to do it as much as I want (I do it annually). Between the tIRA and 401k conversions, I am dumping $25k / year into Roth IRA's.

Once you get the money into the Roth, then there may be a 5 year rule that applies. Again, this is very complex and can prevent you from getting at the Roth dollars before you are 59 1/2.

The nice thing about a Roth IRA is you do not have to take RMD's, ever. And the contributions were already taxed and the earnings will not be taxed. If everything goes as planned, I won't ever have to touch my Roth savings. The kids will get it all.

I would recommend you do a lot of study before jumping into the backdoor Roth. The boglehead fora are where I got all the specific details as it relates to my situation. I would offer to help, but I'm afraid I might steer you in the wrong direction and then you end up sideways with the IRS.

Tom

[Singuy]

It's called a back door Roth and it can be simple or very complex. It's simple for me because I do not have any deductible traditional IRA contributions or earnings anywhere in my portfolio. If I did, there would be a prorata rule applied and it gets very messy.

I also contribute post tax dollars to my 401k and roll that into a Roth IRA. That is simple for me as well because my plan allows me to do it as much as I want (I do it annually). Between the tIRA and 401k conversions, I am dumping $25k / year into Roth IRA's.

Once you get the money into the Roth, then there may be a 5 year rule that applies. Again, this is very complex and can prevent you from getting at the Roth dollars before you are 59 1/2.

The nice thing about a Roth IRA is you do not have to take RMD's, ever. And the contributions were already taxed and the earnings will not be taxed. If everything goes as planned, I won't ever have to touch my Roth savings. The kids will get it all.

I would recommend you do a lot of study before jumping into the backdoor Roth. The boglehead fora are where I got all the specific details as it relates to my situation. I would offer to help, but I'm afraid I might steer you in the wrong direction and then you end up sideways with the IRS.

Tom

Bam! Just converted! That took like 2 seconds.

My IRA account is non-deductible so putting money in there is like putting it in the market myself because I get 0 take benefits from it. Now with the conversion, I can finally take it out tax free at least!

[corn18]

Bam! Just converted! That took like 2 seconds.

My IRA account is non-deductible so putting money in there is like putting it in the market myself because I get 0 take benefits from it. Now with the conversion, I can finally take it out tax free at least!

Make sure you research the 5 year rule for Roth conversions. I can't take any of my conversions out until 2019 because I didn't open my first Roth until 2014. If you have a Roth older than 2011, then you can take it out any time.

Tom

[Singuy]

Make sure you research the 5 year rule for Roth conversions. I can't take any of my conversions out until 2019 because I didn't open my first Roth until 2014. If you have a Roth older than 2011, then you can take it out any time.

Tom

That is okay because this roth will sit for another good 30 years before I do anything.

This is fantastic!

[corn18]

That is okay because this roth will sit for another good 30 years before I do anything.

This is fantastic!

Sounds good. Make sure you file an 8606 with your 2016 federal return. The IRS
will try to tax the withdrawal from the converted Roth if you don't.

[Like2Plan]

I second tomhole's advice to look at the Boglehead wiki on this subject. There are lots of additional links that explain the mechanics of how this is done on the tax forms. (Even if you have someone else do your taxes, it is important to know what is going on. )

The biggest fly in the ointment to making a conversion is if your already have a traditional IRA. The IRS applies the pro rata rule to the conversion which looks at all your traditional IRA as a whole--not just the current year contributions. (There is a work around to isolate the basis which could avoid an unpleasant surprise at tax time.)

The next challenge is tracking the conversions because until you are 59.5 each conversion will have a 5 year holding period.

Finally, it becomes a little complicated in the the unlikely event that you need to withdraw your contributions from a converted Roth account before 59.5.

If you have a tax professional taking care of your taxes, I would highly recommend consulting with him/her before proceeding with a conversion since he/she will know your overall situation and perhaps avoid some of the pitfalls.