backdoor Roth IRA

Sep 12, 2013 7 Replies

For the last couple of years or so, I have been following what is sometimes called the backdoor Roth IRA. I have been contributing to a non-deductible IRA and then converting a few days later to a Roth. I've been filing form 8606 with my taxes. Since all my retirement funds are in 401(k)'s, this has been a non-taxable event.



I just wanted to do a sanity check since I'm about to do the same thing this year. About the only change I notice is that I can now contribute $5500 vs $5000 in previous years.



Has anything changed in the last year that would prevent me from doing this, or make it not advisable to do so?



Thanks.


I'll assume that what you mean by the last sentence, is that you have no other traditional IRAs and therefore, you are only converting your annual contributions that have already been taxed. If there were earnings in the few days between contribution and conversion, those earnings would be taxable.

No, nothing has changed except the amount. $5500 or $6500 if age 50.

I assume you are using this method, because your AGI is too high to make a Roth IRA contribution. Otherwise, I can't see a reason not to make direct contributions to the Roth.

Do you have any traditional IRA that you ever made normal contributions to and took a deduction for it. Say you have $10,000 in such an IRA. Then you put $5000 into a traditional IRA and take no deduction for it, and convert this $5000 into a Roth without any tax consequences. This is actually not allowed. Of the $5000 conversion, a portion is considered to have come from the traditional IRA for which you took a deduction in prior years, and tax must be paid on it; and part of the $5000 is considered to come from the non-deductible IRA and no tax is due on this part.

Never made contributions to a traditional IRA. I previously had a rollover IRA from many prior 401(k)s, but I rolled that into my ex-employer's 401(k) (which I still have) before I started doing the backdoor Roth thing.

It's 2014 now, and I'm starting to think about contributing to the Roth using the backdoor approach once again. Has anything changed since last year that would disallow doing this?

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