Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Taxes on back-door Roth that lost value?
Old 09-11-2015, 06:47 AM   #1
Full time employment: Posting here.
Philliefan33's Avatar
 
Join Date: Oct 2014
Posts: 729
Taxes on back-door Roth that lost value?

The dollar amounts in my scenario are not large enough to lose sleep over, but I still want to figure out how to do this.

We have been in the income range where Roth IRAs are not allowed/contributions to TIRAs have to be after taxes. I've contributed (non-deductible) for a few years, a total of 18K. This account is the only TIRA that I own. All other retirement money is in Roth or 401K accounts. I always planned to do a back-door Roth with this account, but our tax returns were already pretty complicated the past two years and I just didn't feel like having to fill out another form. I want to do the conversion this year.

This year, I received my share of a class-action suit regarding a pension buyout twenty years ago: $150. I had the $150 transferred directly to the TIRA, it was considered a rollover and was not taxed.

As I understand it, if I do a Roth conversion and the value of the TIRA is $18,150, I will owe taxes only on the $150. If the value is more, due to investment growth, I pay taxes on "X-18K". But what if the value of my account is less than 18K? With the recent volatility in the market, this is a possibility. Do I owe taxes on the $150 regardless of the overall value of the account?
__________________

__________________
Philliefan33 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-11-2015, 08:00 AM   #2
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,045
I am not 100% sure, but I think it's just a non-taxable transaction.

If that is the case, only backdoor a partial amount. Or wait. A tIRA that has no gains is just as good as a Roth...
__________________

__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is online now   Reply With Quote
Old 09-11-2015, 08:43 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Senator is correct about it being nontaxable. To convince yourself, fill out F8606 http://www.irs.gov/pub/irs-prior/f8606--2014.pdf which you should have been doing to document your basis (not taxable part of TIRA). Lines 2,3,5 are
basically your basis. Any decrease in values is taken into account in steps 6 and/or step 8. (and step 9). The ratio of basis to "total value" is taken account in line 10 with a 1.000 max .......the 1.000 ratio means all is basis and non-taxable.......as you determine in line 11. The taxable amount is in line 15 but
should be 0 if values go down enough.

Senator also has a good idea about the conversion if values go down......if you convert the whole thing and then close the account you may lose part of your basis which could shelter part of future conversions........so convert an amount so that you don't lose any of that amount if possible and consider keeping the account open keeping in mind any minimum requirements the broker may have to avoid penalties/fees.
__________________
kaneohe is offline   Reply With Quote
Old 09-11-2015, 10:09 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,409
Your IRA provider should be able to tell you whether the conversion would be a taxable event and if so how much the taxable income will be based on the value on a specified date.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 09-11-2015, 11:19 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by pb4uski View Post
Your IRA provider should be able to tell you whether the conversion would be a taxable event and if so how much the taxable income will be based on the value on a specified date.
pb4uski.........since only the taxpayer knows whether contributions were deducted or not and therefore the basis, it is unlikely that the IRA custodian could be of any help here.........unless you give them that info.
__________________
kaneohe is offline   Reply With Quote
Old 09-11-2015, 12:15 PM   #6
Full time employment: Posting here.
Philliefan33's Avatar
 
Join Date: Oct 2014
Posts: 729
Good point about losing basis. That won't matter if I don't make any more TIRA contributions, but I don't know where our taxable income is going to fall this year and subsequent years. I'm no longer brining in a salary but DH just keeps getting contracting gigs that he enjoys.

I have a few more months to play with some numbers. It might make sense to do the conversion when the value is not much higher than the basis to minimize taxes, then let the money grow under the Roth umbrella. I'm only 50 so this money won't be touched for at least ten years.
__________________
Philliefan33 is online now   Reply With Quote
Old 09-11-2015, 05:26 PM   #7
Full time employment: Posting here.
ronocnikral's Avatar
 
Join Date: Apr 2010
Posts: 852
if you convert this year and file for an extension (Oct 15th), you'll have almost a year to see how it plays out and can leave the conversion in place or "undo" if it is not favorable to you (or whatever it is you are trying to do).
__________________

__________________
ronocnikral is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
After tax 401 and back door Roth sayhey24 FIRE and Money 2 05-22-2015 08:55 AM
Back door Roth oops dadoftwo FIRE and Money 12 05-10-2014 11:15 AM
Question on Back Door Roth IRA Conversions Ready FIRE and Money 8 12-09-2013 07:38 PM
Confused about back door Roth from 401K tinlizzy FIRE and Money 10 02-14-2012 09:47 PM
Rollover IRA/back door Roth quandary coalcracker FIRE and Money 5 02-08-2012 09:16 AM

 

 
All times are GMT -6. The time now is 08:08 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.