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Struggles with Back Door Roth IRA
Old 11-18-2015, 05:23 PM   #1
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Struggles with Back Door Roth IRA

Hi All,
I'm really struggling with the thought that I could be putting money in my Roth IRA via the back door method, but I have pre-tax money sitting in my traditional IRA, that is getting in the way. Here is my situation:
-Earning to much to contribute to a Roth via the conventional method.
-Have approximately 130K (pre-tax) in investments in my traditional IRA (rolled in from previous employer 401k)
-Have approximately 32K in investments in my Roth IRA (contributed before I exceeded the limit)
-Have a employer sponsored 401K with approximately 180K (pre-tax) in investments (contributing regularly and maxing out).

I COULD possibly move all the money from my traditional IRA into my employers 401K. I checked and the plan does allow in-service roll-in's. This would free up my tax liability and could do a 5,500 non-deductible contribution, then some time later do the conversion to my Roth IRA. I guess the downside there is that I'm stuck with the money in my 401K, with limited investment options...maybe I'm over thinking this. What do you think?

I also heard from another user here, Exit 2024, that I could setup a "business" as a Sole Proprietor and COULD open a solo 401K with Fidelity and transfer the Traditional IRA into that account. This would require one extra income tax form every year (schedule C), but not a really big deal. Am I any better off doing that vs. moving the money into my company's 401K plan? If not, then why would I do this vs. just rolling into company 401k?

I generally like having the traditional IRA only because I can execute my 3 fund strategy (VTI, VEU, BND) in conjunction with my individual account (not mentioned above) and my Roth IRA. But, my 401K is actually outperforming my individual, Roth IRA, and Traditional IRA. I guess the other thing to realize is that when I retire or quit my job I COULD move the money from my 401K to a Traditional IRA, if I REALLY didn't like the 401k. So, there is an out I suppose...

Again, maybe I'm overthinking it and should just move the money to my employer 401K so I have access to the backdoor Roth every year and can take advantage of tax-free gains...

Your help and thoughts are much appreciated....
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Old 11-18-2015, 06:19 PM   #2
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Why do you need to move it all at once? Just move an amount that takes you to the next tax bracket.

If you are already in a 28% bracket, there is no incentive to transfer. Unless you think taxes will be higher in the future.

Move to a state tax free state to move the assets, like 1 year, then move back if it helps.
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Old 11-18-2015, 09:37 PM   #3
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It depends on how limited and expensive the options in the company plan really are. This is exactly what I am doing. I have two role over IRAs I am moving into the employers plan and making nondeductible contributions to the IRA for roth conversion this year and next. The plain has low costs and reasonable choices.
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Old 11-18-2015, 11:59 PM   #4
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We rolled money into our 401k's to avoid prorating taxes on a back door Roth. Our 401k plans had good choices and low fees. As an additional benefit, the money rolled in to the 401k was accessible without penalty once my husband separated from service in the year he turned 55. A nice benefit for ER folk if the 401k plan allows it.



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Old 11-19-2015, 08:40 AM   #5
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I did both options you mentioned for backdoor roth ira. I moved my IRA to my company 401K(Plenty of low cost choices including DFA funds) and have been contributing via backdoor.
My wife started consulting this year so I opened a solo 401K with Fidelity and rolled over her IRA into it. Now she'll be able to use the backdoor too!

Also check with your employer if they allow Roth 401K contribution(This is in addition to regular 401k contribution limit). If yes, you can then also invest your after tax money in Roth 401K and then convert to Roth IRA at later stage. My company allows 10% of my salary in Roth 401K.

All together, I've been contributing:

18K + 6K catch up.....24K in my 401K (I'm 51 yrs old so catch up)
12K..........................My Employer match
20K..........................My Roth 401K contribution
12K..........................Roth IRA backdoor for me and wife
10K..........................Wife's solo 401k
===================================
78K Total Contribuiton
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Old 11-19-2015, 09:41 AM   #6
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retire2020 I believe your confusing After-Tax 401k contribution with Roth 401k contribution. Your $18k 401k yearly allowable contribution can only be made by Pre-tax and/or Roth contributions. The $53k yearly limit then takes the $18k, plus employer contribution, plus After-Tax contribution (That is if your employer allows after-tax contributions. Not all do.)
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Old 11-19-2015, 09:46 AM   #7
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retire2020 I believe your confusing After-Tax 401k contribution with Roth 401k contribution. Your $18k 401k yearly allowable contribution can only be made by Pre-tax and/or Roth contributions. The $53k yearly limit then takes the $18k, plus employer contribution, plus After-Tax contribution (That is if your employer allows after-tax contributions. Not all do.)
Morgan22, I believe you are correct - Your $18k 401k yearly allowable contribution can only be made by Pre-tax and/or Roth contributions. Retire2020 must mean AFTER-TAX 401K, which unfortunately my company does not offer as a part of their plan.
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Old 11-19-2015, 09:56 AM   #8
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Can you all give me examples of what you mean by "low cost" fund options? My company has a few that I think are "low cost". I define that as less than 0.10% Expense Ratio. Maybe my definition is different than yours. Would be good to clear that up. :-)

Here are all my options. Let me know if you think these are "good" or not, please! Expense ratio is shown to the right of the fund.

Vanguard Prime Money Market-Inst, 0.10%
PIMCO Total Return-Inst, 0.46%
PIMCO All Asset-Inst, 1.03%
Vanguard Institutional Index, 0.04%
Harbor Capital Appreciation-Inst, 0.68%
Vanguard Mid-Cap Index-Inst, 0.08%
DFA U.S. Targeted Value Portfolio, 0.37%
American Beacon Stephens Small Cap Growth-Inst, 1.10%
Dodge & Cox International Stock, 0.64%
William Blair Institutional International Growth, 0.97%
Vanguard Target Retirement Income Fund, 0.16%
Vanguard Target Retirement Fund 20XX, 0.16%
Employer (Company) Stock Fund, 0.00%
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Old 11-19-2015, 10:58 AM   #9
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You have 2 good VG index funds w/ very low ERs. Perhaps consider the relatively low cost VG Tgt Retirement Income fund as a substitute for the higher ER Pimco Total Return Fund for the income component (tho they seem to have similar 10 yr returns). Both have done better than VG Total
Bond Market over the past 10 yrs.

Moving the deductible TIRA components to your 401K sounds simpler than doing the solo and maybe more legit as well.
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Struggles with Back Door Roth IRA
Old 11-19-2015, 11:38 AM   #10
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Struggles with Back Door Roth IRA

Yep. My bad. I meant after tax 401K. When I participated rep spoke about Roth 401k which is from after tax money so I thought it was called Roth 401K.


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Old 11-19-2015, 03:10 PM   #11
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You have 2 good VG index funds w/ very low ERs. Perhaps consider the relatively low cost VG Tgt Retirement Income fund as a substitute for the higher ER Pimco Total Return Fund for the income component (tho they seem to have similar 10 yr returns). Both have done better than VG Total
Bond Market over the past 10 yrs.

Moving the deductible TIRA components to your 401K sounds simpler than doing the solo and maybe more legit as well.

Thanks. And those two low cost index funds are the ones I'm in currently.
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Old 11-20-2015, 09:22 PM   #12
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If it were me, I'd move my TIRA assets to employer's 401k to make backdoor RIRA funding easier. One reason is that I hate dealing with all those additional nuances wherever taxes are involved. And the 2nd reason would be that your money gets a better shelter sitting in the 401k from a legal standpoint.
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Old 11-21-2015, 09:11 AM   #13
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Well, I've decided after thinking about it and reading up on things that I am going to file the paperwork to move my money from my TIRA to my company 401K, to make the back-door Roth more practical. I'll get a contribution this year, then set myself up for the years to come....as long as there isn't a tax law change. Thank you all for the suggestions and guidance.
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Old 11-21-2015, 02:35 PM   #14
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Also check with your employer if they allow Roth 401K contribution(This is in addition to regular 401k contribution limit). If yes, you can then also invest your after tax money in Roth 401K and then convert to Roth IRA at later stage. My company allows 10% of my salary in Roth 401K.

All together, I've been contributing:

18K + 6K catch up.....24K in my 401K (I'm 51 yrs old so catch up)
12K..........................My Employer match
20K..........................My Roth 401K contribution
12K..........................Roth IRA backdoor for me and wife
10K..........................Wife's solo 401k
===================================
78K Total Contribuiton
I thought the 401K limits apply to the sum of both the Roth and regular 401K? It looks like you are contributing the limit to both?
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Old 11-21-2015, 08:52 PM   #15
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Artinker... See my response # 10


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Old 11-22-2015, 04:52 PM   #16
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I went the route of opening an individual 401k. I rolled all Pretax, former 401k funds from IRA to i401k. I had about 60K left that was after tax IRA contributions, which I back doored. I then, annually, contribute max after tax to IRA then back door it to ROTH.


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Old 11-22-2015, 10:22 PM   #17
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Can you simply make after-tax contributions to your 401k? If so, then it is substantively similar and you can later roll accumulated after-tax balance to your Roth.

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Old 12-22-2015, 11:20 PM   #18
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Can you simply make after-tax contributions to your 401k? If so, then it is substantively similar and you can later roll accumulated after-tax balance to your Roth.

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Unfortunately I cannot. Wish I could though.
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