Forget “reasons” in my case, and look for “excuses” - I was uninformed about everything and was just putting in non-deductible contributions - our total “basis” on the 8606 is about 150K for the two of us. That’s when I plugged it into Excel and found the regular taxes on the gains on these contributions make non-deductible contributions (without an immediate backdoor to Roth) not sound and stopped altogether.
Few more years later, courtesy of Bogleheads (and perhaps others) found out about moving the tIRA gains to our 401ks leaving just the after-tax amount in the IRA which presumably can then be Rothified without incurring taxes. That’s when I realized just how strong Newton’s first law of inertia is, and that’s how it stands. Most of my subsequent effort is sadly to avoid looking at just how much money I left/am leaving on the table, rather than doing it
@Dadof3 , I am there with you, brother. I didn’t realize until very recently that my wife’s 401k had a post-tax (but non-Roth) option. I’m not sure when that option was added, but I overlooked the opportunity for a mega backdoor Roth until 2015. D’oh! We have all left money on the table, but I’d rather have the regret of knowing that than the blissful ignorance of continuing to do so.
One of the great things about the internet is that it democratizes tax and investing savvy. It’s still true that we’re too soon old and too late smart, but we have a fighting chance now.
Our 401k had that option, but I didn’t know it, I knew I could put in more than the maximum annual limit. We got a check back when we transferred our 401k to IRA. I don’t know if we could transfer that amount from the check to Roth IRA or not.
@DrGoogle, we just went through that with Fidelity. I held their hand and detailed everything but they still go it (slightly) wrong. But, we got a check for ~$120k that went smoothly into a Vanguard rIRA and another check for ~$200k that went into a Vanguard tIRA. Now we want to see if we can reverse roll that $200k to a new employer’s 401k, so that we can resume backdoor Roth activity.
If it’s relatively recent, you should call and see if you can re-characterize the contributions.
I use this Fidelity to calculate the conversion benefits and I did not see much benefits from converting to Roth except for converting a small amount while I am working now.
But, @Dadof3, why won’t you do it if it’s feasible? I don’t have the option to use an employer QRP to isolate our basis but if I did, I would fill out the paperwork and make the phone calls and come out happy with 1 or 2 Roth IRAs that are worth $150K. Yes?
If converting (= taxable OI distribution from your tIRA) keeps you in the same tax bracket or bumps you up to the next one while you are working AND you anticipate that your effective tax will be lower in retirement during the “donut” years, then it makes sense to wait until you can convert at a lower marginal rate after you stop working.
As I’m sure you’ve read in many places in this thread, people who (1) do not have or (2) do not have a large balance in a pre-tax IRA so that proration is not a problem can do the annual backdoor Roth conversion by contributing first to a non-deductible tIRA and immediately converting to rIRA.
Employer plans will have more limits and stricter requirements, presumably. They are not in business to help employees get Roth IRAs. But, is an IRA always titled as “Rollover IRA” if it is from a previous employer 401k plan and differently if it is a “contributory” IRA? It’s worth a look.
Not sure if this question belongs here…or not. I am retired and collect social,security…$166 a month (I work in a state where teachers don’t contribute to SS, and am subject to the windfall provision whereby my teachers pension reduces my SS by 2/3…thus the number).
This year, I will likely be earning $27,000 in salary. I know this will do something to my (small) SS benefit…but what?
What exactly happens when your income exceeds the allowable earnings? I am 64 years old.
Not sure it matters too much as I am earning more in 1/2 a day than I get in SS benefits per month…but need to plan!
When we first rolled stuff out of 401ks, Fidelity created new IRA accounts which are labeled as “Rollover IRAs”, as opposed to the other ones which are labeled “traditional IRA” and “SEP-IRA”. Subsequent rollovers have gone into the rollover IRA accounts.
So Fidelity recognizes a difference. Not sure if it makes a difference… maybe it used to in the past and that’s what I remember.
I did find this:
Any idea what special treatment this might refer to? Only thing I can thing of is if you have appreciated employer stock.
I wa able to rollover everything to my 401k, not just rollover I RA. I had to make this rollover to fix a mistake of contributing to non-deductible IRA contribution.
Thanks for the information about IRA account designations.
As to your question, I have no idea what the special tax treatment refers to, but it’s possible it’s the Net Unrealized Appreciation (NUA) thing if one has that option for employer stock. But I’m just speculating.
I’m no expert on this, but when I passed this link to my 401(k) person a few months ago, she said there would be no problem. http://www.journalofaccountancy.com/Issues/2013/Apr/20126284.htm
I said my situation was similar to what’s described in the paragraph starting, “Put another way…”
So if my interpretation of this is correct, the issue may be in a specific 401k plan which doesn’t accept such rollovers, and not necessarily an IRS no-no.
@AttorneyMother, “Why won’t you do it” - because I’m a jackass and procrastinator when things are not crystal clear, and there’s “one more loose end to check” before jumping in, and also much more limited options and higher expense ratios of the instruments in the 401k.
@Dadof3, looks like I was wrong. I haven’t looked into this in years, so I don’t know whether the rules changed at some point or if I dreamed it. I probably dreamed it.
From what I can see of the other issue, splitting it into non-deductible contributions and earnings is the IRS approved way to do it, and then rolling the rest into a Roth is a sweet sweet deal.
I will earn $27,000… So $12,000 will be subject to reducing my small benefit. I only GET $166 a month. If they take away $1 for every $2 I earn above $15,000…I will be in the hole big time.
it would be $6000…right that they would deduct. I only get about $2000 a year in SS benefits!
How do they get this money? Is it a reduced benefit for me for three years? Do I have to pay them up front?
