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Old 12-30-2011, 03:43 PM   #21
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kaneohe.....

You've done a nice job explaining. Thanks.

I have a TIRA which is a blend of pre and post tax contributions (all quantified and documented on form 8606 of course.) I've begun doing some converting and, yes, you do a blend. Identifying the post tax dollars and converting those is not allowed. In my case, I'm in the neighborhood of 50/50 so when I converted $30k, about $15k added to my income as taxable. ...
And IIRC, the blend is based on ALL your IRA $ that are of the same type you are withdrawing from, not just that one account (moot if you only have one account).

I had a small post-tax contribution in my 401K, and when I rolled it over to a Trad IRA, the broker would only accept the pre-tax portion, no blending (this may be by law). It was only a few thousand in the post tax portion, they just sent me a check. Since this was already taxed, nothing to report (unless I did it wrong, or my memory is failing on this issue; both are possible, maybe even probable).

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Old 12-30-2011, 06:06 PM   #22
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And IIRC, the blend is based on ALL your IRA $ that are of the same type you are withdrawing from, not just that one account (moot if you only have one account).


-ERD50
Correct. I have only my TIRA and my Roth so when converting to the Roth from the TIRA, the dollars I convert are taxed in the same proportion as the pre and post tax dollars in the TIRA. If I had a rollover IRA, those dollars would be added to the TIRA and the calculation would be done on the combination.

I'm delaying rolling over my 401k so that that large slug of pre-tax dollars are not in the calculation as they would be if I converted it to a rollover IRA now. As mentioned earlier, I'm fortunate that MegaCorp's 401k has low cost index funds available. DW's 403B was horrible and we rolled that over immediately upon her retirement to get away from the lousy choices and sky high fees. So...... no Roth conversions for her.


Like form 8606, it looks complicated when you start figuring it out but isn't really.
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Old 12-30-2011, 11:22 PM   #23
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I had a small post-tax contribution in my 401K, and when I rolled it over to a Trad IRA, the broker would only accept the pre-tax portion, no blending (this may be by law). It was only a few thousand in the post tax portion, they just sent me a check. Since this was already taxed, nothing to report (unless I did it wrong, or my memory is failing on this issue; both are possible, maybe even probable).

-ERD50
ERD50.....I have no knowledge about this but I would have thought that somehow the post tax part could have been converted to a Roth....maybe it would have to be done separately?
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Old 12-31-2011, 07:25 AM   #24
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DW and I make too made money (filthy lucre!) to qualify for contributing to our Roth IRAs in 2011. So we each funded a Traditional IRA and then converted those accounts to Roths since the income limits on conversions was lifted in 2010. Hence the "backdoor" Roth contribution.

This is still allowed for 2012, right? I am planning to make the contribution and convert it in January. I just want to make sure the rules are the same as they were for 2011.
I did the backdoor conversion for 2011 and will do it again for 2012 (and will keep doing it until they close this option. We are also boxed out of ROTH via income limits. I knew the IRS change lifting income limits were on the horizon and therefore my wife and I contribute to nondeductible TIRA's for years leading up to 2010 and was a little miffed that you had to convert ALL previous IRA's or do some complicated accounting computations if you didn't want to convert all. I unfortunately, had rolled over a 401k to an IRA for my wife, so we did no conversions for her but I proceeded to convert all my older deductible TIRAs and more recent nondeductible TIRAs and pay taxes in 2010. So now I have a "clean slate" with only Roth IRA's and I convert each year. My strategy from advice obtained from this forum is to have as many options in retirement as possible. Of interest, my accountant thinks this is in the "grey zone" and as I have discovered repeatedly, I usually know more than my accountant (and I'm not very bright).
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Old 12-31-2011, 07:00 PM   #25
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Of interest, my accountant thinks this is in the "grey zone" and as I have discovered repeatedly, I usually know more than my accountant (and I'm not very bright).
I have had the same experience. It gives me the willies. The only reason I keep him is that I need someone to talk to the IRS when they call.
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Old 01-02-2012, 12:26 AM   #26
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I have been doing the conversion the last couple of years. I actually started putting money in the after tax TIRA a few years before in preparation. I used to have a before tax rollover IRA, but I rolled it over into my current 401K beforehand so I wouldnt have to worry about paying taxes when I started the conversion . Vanguard told me to just wait a day in between so I wait one day and convert the next day. It works for me. I don't know when they will change the rules on us, but until they do, I am planning to do the conversion every year.
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Old 01-02-2012, 09:57 AM   #27
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Yep, you can't cherry pick which T-IRA account your going to convert to a Roth IRA as far as the IRS is concerned. Even though you may have multiple T-IRA accounts, you need to treat them as one and file Form 8606 with your tax return to allocate the basis and the taxable vs non-taxable parts of your conversion. Of course, if you don't have a basis (non-deductible portion of your T-IRA). Then it's a moot point.

If you ever make a non-deductilbe contribution to a T-IRA, you MUST also file Form 8606 for that year of contribution, or the IRS will deem that the full conversion is taxable.

I've been holding off converting an old 401k account to a T-IRA as I've non-deductible contributions. Once I get the T-IRA converted to Roth, then I'll move the 401k to T-IRA to give me more flexibility.
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Old 01-02-2012, 10:18 AM   #28
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RE2Boys, thanks!

That explains everything to me.
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Old 01-02-2012, 10:57 AM   #29
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ERD50: I had a small post-tax contribution in my 401K, and when I rolled it over to a Trad IRA, the broker would only accept the pre-tax portion, no blending (this may be by law).
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ERD50.....I have no knowledge about this but I would have thought that somehow the post tax part could have been converted to a Roth....maybe it would have to be done separately?
Probably, but it was only ~ $2500, so I didn't bother to look into it at the time. Someone might be able to benefit from that though.


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Old 01-02-2012, 11:18 AM   #30
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OK...so if we have existing regular IRA's with significant balances will this work? From my understanding if I try the 'backdoor Roth' contribution I will face the aggregation issue with the IRS and I will owe taxes even on a fresh deposit - fresh IRA.

Is this correct? Seems like this effectively would eliminate the benefit of the 'backdoor Roth contribution' for those who have not already converted existing regular IRAs. Am I missing something here?

Thanks, SM
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Old 01-03-2012, 12:30 AM   #31
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OK...so if we have existing regular IRA's with significant balances will this work? From my understanding if I try the 'backdoor Roth' contribution I will face the aggregation issue with the IRS and I will owe taxes even on a fresh deposit - fresh IRA.

Is this correct? Seems like this effectively would eliminate the benefit of the 'backdoor Roth contribution' for those who have not already converted existing regular IRAs. Am I missing something here?

Thanks, SM
Yes it is correct. You will need to "hide" the existing pre-tax IRAs in a qualified plan (employer's or your own solo 401k) before you do the backdoor Roth. In my view without this crucial first step, you are really not doing the backdoor Roth. The definition for a backdoor Roth includes this step. Otherwise you are just doing a regular partial Roth conversion.
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Old 01-13-2012, 08:42 PM   #32
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Yes it is correct. You will need to "hide" the existing pre-tax IRAs in a qualified plan (employer's or your own solo 401k) before you do the backdoor Roth.
FB, please explain "hiding" a pre-tax IRA. If you have a regular IRA, and a 403B/401K already, how do you do this??

SM
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Old 01-14-2012, 11:53 AM   #33
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FB, please explain "hiding" a pre-tax IRA. If you have a regular IRA, and a 403B/401K already, how do you do this??

SM
Roll over the pre-tax money in your IRA into your 403b or 401k at work. Or if you have or create some self-employment income, you can set up a solo 401k and roll over into your solo 401k. That way you are not limited by the poor investment options in your employer's plan.
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Old 01-15-2012, 11:17 AM   #34
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The following reference describes the post tax 401k (what ever you may have) dilema. I had a very small dollar amount (~$1K) of post-tax 401k compared to the "big pot" of all of my IRA funds. I recently did a rollover from an old 401k and the administrator cut me a check for the after tax (basis) portion of the 401k before they sent the balance of the funds to Fidelity. I called IRS twice regarding the after tax dollars. After two lengthy discussions with two seperate IRS specialist (I won't complain about how many people or how much time I spent on the phone) who both agreed that the after tax contributions (basis) could be deposited into my Roth IRA (one specialist said it must be done by the 401k administrator (who refused to reopen my closed account with them), the other said it could be sent to the Roth using a 60 day rollover. Neither IRS specialist said anything about the pro rata rule. Fidelity said they would do what I instructed them to do but said their "specialist" advised against such action because of the pro rata rule. BTW, the smaller the "basis" is in relation to the overall IRA (all of them combined if you have more than one), the more onerous the pro rata rule becomes: if the "basis" is only 1% of your total IRA funds, then for each dollar converted to a Roth, 99% will be treated a pre tax dollars. In my case, I had alread converted as much IRA to Roth as I could afford in 2011. I didn't want to muddy those waters, so I banked the $1K.

The Pro Rata Rule
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Old 02-12-2012, 11:06 PM   #35
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A lot of comments here make sense, but I still can't say I know how to use so-called "backdoor Roth IRA" trick.

Here is the specific info:

- $300K in IRA (not 401-K)
- $10K in ROTH IRA
- AGI ~180K

I would love to contribute some $$ to non-deductible IRA (does it have a limit BTW?) and convert to Roth, but I don't want pay much in taxes.

What are my options?
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Old 02-12-2012, 11:52 PM   #36
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A lot of comments here make sense, but I still can't say I know how to use so-called "backdoor Roth IRA" trick.

Here is the specific info:

- $300K in IRA (not 401-K)
- $10K in ROTH IRA
- AGI ~180K

I would love to contribute some $$ to non-deductible IRA (does it have a limit BTW?) and convert to Roth, but I don't want pay much in taxes.

What are my options?
The limit is $5,000 per person per year; $6,000 if you are over 50. If you still have access to a 401k plan, follow the steps here:

Backdoor Roth: A Complete How-To
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