Back door Roth

[Reggie]

How do I start one? Are there any income restrictions?

[kork13]

Easy question first: No, there are no income restrictions for converting a Traditional IRA to a Roth IRA.

The first thing to consider is do you even NEED to use the "back door" strategy? If you are below the income limits for Roth IRA contributions, you can just contribute directly to the Roth. If you don't qualify for the direct Roth, the best way to go is to open a non-deductible traditional IRA. You add your full contribution to that, then you can call the company holding your IRA & request that they "re-charactterize" your IRA into a Roth account. This will create a taxable event, and any gains will be taxed before going in to the Roth. Some people choose to re-characterize immediately after funding to minimize this impact. At that point, you now have an official Roth IRA that you can roll over into your existing Roth account (if you already have one). Just be sure you don't try to deduct your IRA contribution on your taxes. Your financial institution will provide you with the other documents necessary for your taxes related to the conversion.

**Note, I'm not a tax/investment expert, so I may be slightly off in a detail or two... if so, my apologies, and hopefully someone can correct me if necessary.

[LivingAlmostLarge]

Is it worth it to always do a roth IRA conversion?

[Reggie]

A ROTH means that you do not have to pay taxes on the interest you earn. I cannot fathom it ever NOT being worth it.

I don't qualify for any IRA's so I have to find some way to save a little on taxes.

[Petunia 100]

Is it worth it to always do a roth IRA conversion?

It depends on your overall situation.


You want some taxable income, you don't want it to be all tax-free. That doesn't necessarily mean withdrawals from tax-deferred accounts. (The taxable income might be a pension, rental income, etc.)

Remember, everyone gets to put some taxable income in the 0% bracket, some in the 10% bracket, etc. You want to fill up those low brackets.

[Petunia 100]

A ROTH means that you do not have to pay taxes on the interest you earn. I cannot fathom it ever NOT being worth it.

I don't qualify for any IRA's so I have to find some way to save a little on taxes.

If you are under age 70.5 and have earned income, you are eligible to make traditional IRA contributions. Income is a factor in determining if you can deduct the contributions, not a factor in determining if you can make them.

If you have money in a traditional IRA, you are eligible to convert some or all of it to a Roth IRA.

So, you qualify.

[Wino]

Income is a factor in determining if you can deduct the contributions, not a factor in determining if you can make them. If you have money in a traditional IRA, you are eligible to convert some or all of it to a Roth IRA. So, you qualify.

I was wondering about this. This year, I thankfully probably won't qualify for my Roth. If not this year, then next year for sure. It's kind of a gray area, still, until I get all of my compensation.

I'm wondering what the rules are for my wife? She's a SAHW (not SAHM, as the kids have moved out), so can she still do the Roth without working and me making over the maximum? Or do we have to back-door the Roth for her, too. And I guess I'm losing a year no matter what I do, Roth-wise.

I guess it's time to do the google dance on this stuff before December rolls around.

Is there a way for me to put more than $6500 into an IRA, with me making over the maximum for the Roth? I've heretofore always done the Roth, and taxable Mutual funds over that amount as I have no 401K options.

[Petunia 100]

I was wondering about this. This year, I thankfully probably won't qualify for my Roth. If not this year, then next year for sure. It's kind of a gray area, still, until I get all of my compensation.

I'm wondering what the rules are for my wife? She's a SAHW (not SAHM, as the kids have moved out), so can she still do the Roth without working and me making over the maximum? Or do we have to back-door the Roth for her, too. And I guess I'm losing a year no matter what I do, Roth-wise.

I guess it's time to do the google dance on this stuff before December rolls around.

Is there a way for me to put more than $6500 into an IRA, with me making over the maximum for the Roth? I've heretofore always done the Roth, and taxable Mutual funds over that amount as I have no 401K options.

Your wife can contribute directly to a Roth if your joint AGI is less than 183k. (That's for 2012, it is possible it may go up a bit for 2013).

If your AGI is 183k or more, your wife can still do a back door Roth, as long as she is younger than 70.5 at the end of the year.

Are a self-employed contractor, or an employee? Self-employed people do have more options.

[Wino]

Your wife can contribute directly to a Roth if your joint AGI is less than 183k. (That's for 2012, it is possible it may go up a bit for 2013).

If your AGI is 183k or more, your wife can still do a back door Roth, as long as she is younger than 70.5 at the end of the year.

Are a self-employed contractor, or an employee? Self-employed people do have more options.

I'm an employee, but of a foreign corporation, so I don't get to do any SEP stuff. I also then get $100K* as an exemption, which beats anything else I'm aware of.

*more like $96K, but for generalities, it works

[Petunia 100]

Then unfortunately you're limited to just 6.5k in your IRA, another 5.5k/6.5k in your wife's IRA.

If you're not already doing so, you should aim to keep your most tax-inefficient investments inside the IRAs. Also, be on the lookout for opportunities to tax-loss harvest.