Is an UNFUNDED ROTH real Roth

[f35phixer]

got behind the 8 ball on understanding that pensions are not earned income, DW retires Jan 4 and we didn't have Roth for her set up yet. I just went online and set us both Roth accounts on fidelity. Mine not a big deal i will work till Dec 2020, but hers is the question, My credit union Estatement site is down right now for confirmation of bank account for xfer into her Roth for funding. I have a call into my fidelity rep.....

So is an unfunded Roth a real Roth?

Thanks.

 

[RunningBum]

I don't know, but if you need to fund it you could make a very small conversion.

 

[pb4uski]

It doesn't matter whether she has earned income. If between the two of you you have at least $14,000 of earned income you can each contribute up to $7,000 (assuming over 50 and joint income less than $193k).

Generally, you need earned income to contribute to a Roth IRA. For married couples, there is an exception. You can contribute to an IRA for a non-working spouse, up to the maximum annual limit. A spousal Roth IRA isn't a joint account, but can be an effective way for couples to double their retirement savings.

The income limit for contributing the maximum to a Roth IRA will go up by $2,000 for singles from $122,000 in 2019 to $124,000 in 2020. It will go up by $3,000 for married filing jointly from $193,000 in 2019 to $196,000 in 2020.

The annual Roth IRA limit is $6,000 in both 2020 and 2019, up from $5,500 in 2018 (if you're 50 or older, you can add $1,000 to those amounts). The maximum Roth contribution amount applies to all of your traditional and Roth IRAs, combined.

 

[Sunset]

Amazing all the people who never have a ROTH set up yet, given the 5 year rule.

Same in Canada with the Tax Free Savings Account (TFSA), only there missing out on not setting one up years in advance is much WORSE, as they get to carry forward unused annual contribution allowance.

 

[f35phixer]

It doesn't matter whether she has earned income. If between the two of you you have at least $14,000 of earned income you can each contribute up to $7,000 (assuming over 50 and joint income less than $193k).

Thanks PB, more stupid questions. 2018 tax form 1040 line 7 AGI was > 193K line 10 taxable income with standard 24K brings us below that 193K, is this the MAGI they talk about?

 

[f35phixer]

Amazing all the people who never have a ROTH set up yet, given the 5 year rule.

Same in Canada with the Tax Free Savings Account (TFSA), only there missing out on not setting one up years in advance is much WORSE, as they get to carry forward unused annual contribution allowance.

Sorry I'm stupid and learning. But for us, with Pensions and SS(DW @62 me @ 70) and our expected expenses we wont have to touch our IRA's till RMD's hope 70 or 72, so that's 10/12 yrs from now. But for some i certainly understand your

 

[gauss]

One idea: Could you fund the Roth with say $10, even if you have no earned income, and then pay the 6% penalty each year? This could get the 5 year clock started with a minimum of hassle and stress.

-gauss

 

[VanWinkle]

One idea: Could you fund the Roth with say $10, even if you have no earned income, and then pay the 6% penalty each year? This could get the 5 year clock started with a minimum of hassle and stress.

-gauss

I like the way you think gauss!!

VW

 

[N02L84ER]

I don't think it matters if it is not funded before Dec 31st unless the 5-year rule is different than the first year opened rule. According to Investopedia,

""Tax years," with regard to 5-year rules, means that the clock starts ticking Jan. 1 of the tax year when the first contribution was made. A Roth IRA contribution for 2019 can be any time up to April 15, 2020, for example, but it counts as if it were made on Jan. 1, 2019. In this case, you could begin withdrawing funds without penalty on Jan. 1, 2024—not April 15, 2025."
see https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp

 

[kaneohe]

Thanks PB, more stupid questions. 2018 tax form 1040 line 7 AGI was > 193K line 10 taxable income with standard 24K brings us below that 193K, is this the MAGI they talk about?

probably not...........MAGI is modified AGI so start w/ AGI and do "adjustments" as provided in specific MAGI definition you are interested in. https://www.irs.gov/publications/p590a#en_US_2018_publink1000230985

Typically the adjustments are additions/subtractions to AGI but does not include deductions (std/itemized). Note that the link is from 2018 Pub. For 2019, the applicable number is the 193K, not the 199K in the link. This is where the Roth contribution amount starts being phased out over a 10K interval. If you are in that phaseout range, you can contribute but not the full amount.

 

[kaneohe]

One idea: Could you fund the Roth with say $10, even if you have no earned income, and then pay the 6% penalty each year? This could get the 5 year clock started with a minimum of hassle and stress.

-gauss

Don't know...........seems more certain to convert some fromTIRA if you have one.

 

[Dash man]

Can’t you do a backdoor contribution? Contribute to a traditional IRA, then immediately rollover to the Roth. I did that for several years while working.

 

[Sunset]

Sorry I'm stupid and learning. But for us, with Pensions and SS(DW @62 me @ 70) and our expected expenses we wont have to touch our IRA's till RMD's hope 70 or 72, so that's 10/12 yrs from now. But for some i certainly understand your

No, it's not stupidity, it's just that people are not informed, even now in High Schools, I bet most schools don't teach about this type of thing.

I made that comment, hoping someday, someone age 20 or older will read it and go "hmmmm I got to get one of those".

As for your ROTH, convert $1.00 to it from an IRA, this year for this tax year and to get the clock working.
There is no income limit on conversions (I believe, and will be corrected if wrong).

 

[pb4uski]

Thanks PB, more stupid questions. 2018 tax form 1040 line 7 AGI was > 193K line 10 taxable income with standard 24K brings us below that 193K, is this the MAGI they talk about?

It is $193k of AGI, not TI.... but for 2019, not 2018.

 

[Dash man]

It is $193k of AGI, not TI.... but for 2019, not 2018.

With a backdoor Roth contribution it shouldn’t matter. You can put the maximum contribution into a traditional IRA, for both you and your wife if your combined earned income is high enough. Then as soon as the money is in the tIRA, do a rollover into the Roth IRA. No earnings so no tax consequences. This is how we funded our Roth IRAs for years.

 

[Golden sunsets]

What are the mechanics of funding the Roth if one has no earned income and will fund it by taking the money out of a tIRA over and above one's RMD? Does the money flow from the tIRA directly into the Roth(same institution)? Is there rollover paperwork to be filled out? (I completed an on line app last week for a Roth and am waiting for it to show up on my profile). Or can I just deposit the exact amount of excess RMD into the Roth from my checking account?

Thanks to anyone who answers. Don't mean to hijack the thread.

 

[Dash man]

What are the mechanics of funding the Roth if one has no earned income and will fund it by taking the money out of a tIRA over and above one's RMD? Does the money flow from the tIRA directly into the Roth(same institution)? Is there rollover paperwork to be filled out? (I completed an on line app last week for a Roth and am waiting for it to show up on my profile). Or can I just deposit the exact amount of excess RMD into the Roth from my checking account?

Thanks to anyone who answers. Don't mean to hijack the thread.

If the accounts are with the same institution, a simple phone call should do it. Some may have the capability online.
No, you cannot deposit from your checking account because that would be a new contribution requiring earned income.

 

[RunningBum]

What are the mechanics of funding the Roth if one has no earned income and will fund it by taking the money out of a tIRA over and above one's RMD? Does the money flow from the tIRA directly into the Roth(same institution)? Is there rollover paperwork to be filled out? (I completed an on line app last week for a Roth and am waiting for it to show up on my profile). Or can I just deposit the exact amount of excess RMD into the Roth from my checking account?

Thanks to anyone who answers. Don't mean to hijack the thread.

I do a direct transfer between my VG accounts. IIRC VG informs me that this is a Roth conversion and is a taxable event. No paperwork needed. VG sends the appropriate form (1099-R) at tax time.

You can also do an indirect transfer, within 60 days of your tIRA withdrawal. I've never done this and don't know if there is anything special that needs to be done for this. I just know that it's an option.

 

[pb4uski]

What are the mechanics of funding the Roth if one has no earned income and will fund it by taking the money out of a tIRA over and above one's RMD? Does the money flow from the tIRA directly into the Roth(same institution)? Is there rollover paperwork to be filled out? (I completed an on line app last week for a Roth and am waiting for it to show up on my profile). Or can I just deposit the exact amount of excess RMD into the Roth from my checking account?

Thanks to anyone who answers. Don't mean to hijack the thread.

In my case I have both my tIRA and Roth at Vanguard, so I do the conversion online and it happens at the close of trading that day.

I would not do the last part that you wrote because the custodian might misinterpret the deposit as a contribution rather than a conversion. Since you have no earned income if it is reported as a contribution it could cause you a hassle with the IRS. It might be ok as long as when you make the deposit you specify that it is a rollover conversion and not a contribution, but I wouldn't take the chance. There is also the 60-day window and once every 12 months restriction.

 

[kaneohe]

..................................
No, you cannot deposit from your checking account because that would be a new contribution requiring earned income.

as mentioned by RB in the post above you can do an indirect rollover (within 60 days) so the funds can come out of your checking account if you received a deposit from your TIRA within 60 days. You will need to make it clear that it is a conversion via the receiving institution's paperwork.
https://www.retirementdictionary.com/tutorials/roth-ira-conversions

 

[VanWinkle]

Just did a partial conversion yesterday at Vanguard. You choose the fund in the IRA that you would like to convert, choose how many shares of that fund, and then transfer to existing Roth at Vanguard. The exact dollar amount will not be known until the end of business Monday for me. There is a tab that states Conversion to Roth that starts the procedure.

 

[pb4uski]

I probably won't do a Roth conversion this year.... tIRA withdrawals instead to provide cash to payoff our mortgage. After them mortgage is gone I will get rid of my cash allocation so target AA will move from 60/35/5 to 65/35... essentially trading receiving 1.7% on cash to avoiding 3.375% on mortgage. I'll be below the 65% stock target initially but will drift up to it over time.

Since both tIRA withdrawals and Roth conversions reduce the tIRA at the same low-tax cost, it is six of one or a half-dozen of another to me.

 

[VanWinkle]

I probably won't do a Roth conversion this year.... tIRA withdrawals instead to provide cash to payoff our mortgage. After them mortgage is gone I will get rid of my cash allocation so target AA will move from 60/35/5 to 65/35... essentially trading receiving 1.7% on cash to avoiding 3.375% on mortgage. I'll be below the 65% stock target initially but will drift up to it over time.

Since both tIRA withdrawals and Roth conversions reduce the tIRA at the same low-tax cost, it is six of one or a half-dozen of another to me.

Not to mention the non-taxed growth in the Roth after conversion.... which would make a difference if we live long enough.

 

[f35phixer]

Got email from FIDO rep, we have till April 2020 to fund for 2019,accounts , it remains open for 6 months without funding.... I feel better to now start Roth conversions. Thank you for your inputs....