Traditional after-tax IRA -> Roth IRA conversion easy?

[wanaberetiree]

I am sure it was asked before, but I am still not 100% clear on this.
I watched Suzi Orman today and she said it again (paraphrasing): "Contribute into traditional IRA and then convert it to Roth IRA".

So wondering again, is this that easy? Do I have a limit to contribute to traditional IRA? Does it depend on income? Are taxes involved if I have deferred IRA?

Have you done this? Please share your personal experiences.

 

[Gatordoc50]

You can contribute to a traditional IRA regardless of income. However there are deductibility limits based on income. Converting to a Roth is complicated if you have other IRA accounts like Rollover IRAs or Simple IRAs. So to answer your question, no, it's not always simple.

 

[kaneohe]

There are contribution limits to TIRA........depends on age/income.
Deductibility depends on income, whether you/spouse are covered by retirement plan at work. Report non-deductible contributions (basis) and Roth conversions on Form 8606 when you file taxes. The form and instructions will guide you step by step through the process.
More detailed info here:
http://www.irs.gov/pub/irs-pdf/p590.pdf
http://www.irs.gov/pub/irs-pdf/f8606.pdf
http://www.irs.gov/pub/irs-pdf/i8606.pdf

 

[panhead]

Yes, I have done it. This is done when your income limits prohibit you from funding a ROTH IRA directly. You open a non-deductible IRA (you don't need to to explain to anyone or fill out any forms that it's non deductible). You fund it to the irs limits ($5500 this year before any catch up contributions for you older folk). Then you either convert it to a roth, or roll it into an existing roth. If you have existing deductible IRAs, these need to be either converted at the same time (not great if you are in a high tax bracket) or roll them into an existing 401k. If you don't, you owe additional $$s on the conversion. There is a form at tax time that needs to be filled out as well.

Check out this link:

Backdoor Roth: A Complete How-To