Converting Roth 401(k) to Roth IRA?
#21
Regional guy here lurking in the majors forum, so not rich but higher earner than the average American, with money in a traditional IRA that was both pretax and post tax contributions. Could you please explain the pro rata rule as I'm probably going to convert that Traditional to a Roth for the Backdoor.
kinda figure taxes for most of us will jump after Jan 2021 so I'd rather pay 24% now than 50% later.
kinda figure taxes for most of us will jump after Jan 2021 so I'd rather pay 24% now than 50% later.
If your current Traditional IRA had $8, and the pre/post breakdown was $5-pre/$3-post and you wanted to do the back door contribution of $2, you would first contribute the $2 post tax into your IRA and then convert $2 to your ROTH.
The tax issue (pro rata rule) is that the IRS doesn't care that you just put $2 of post tax into your IRA, they just see that the new ratio of pre/post in the traditional IRA is now $5/$5. You will need to pay taxes on 50% ($1) of that $2 conversion.
One thing that I've read is, with all the different brokerage houses out there, the best thing to set up is one Traditional IRA specifically for the back door process. Open the T-IRA and keep it at a $0 balance. When you want to do the B.D. conversion, deposit the post tax $ into the T-IRA and then convert it as soon as it clears the hold (usually 2-10 days depending on the brokerage). That way you don't owe tax on any of the deposited $ and the only thing you'll owe tax on is the earnings (if the market went up during the hold). Some brokerage houses know the deal, and will 'auto-convert' for you. You'd need to talk to the brokerage to see if they do this.
DYODD. I'm just a pilot and it isn't smart to take financial advice from a pilot.
#22
Regional guy here lurking in the majors forum, so not rich but higher earner than the average American, with money in a traditional IRA that was both pretax and post tax contributions. Could you please explain the pro rata rule as I'm probably going to convert that Traditional to a Roth for the Backdoor.
kinda figure taxes for most of us will jump after Jan 2021 so I'd rather pay 24% now than 50% later.
kinda figure taxes for most of us will jump after Jan 2021 so I'd rather pay 24% now than 50% later.
#24
Gets Weekends Off
Joined APC: Nov 2016
Posts: 2,532
#26
Gets Weekends Off
Joined APC: Apr 2018
Posts: 3,143
Creative Accounting?
Any thoughts about ways to "benefit" me vice the government regarding taxes going into retirement?. One thing I was thinking was, delay taking PBGC benefit for a full calendar year as well as delaying taking SS for that same year. Both of those payouts go up in subsequent years,....but more importantly....my tax rate would be 0% for that calendar year. Then do some sorta roth conversion on some monies and probably(hopefully) pay a lot less taxes to do that due to the 0% tax bracket to start ( before the taxable money that is getting converted)
Thoughts....will talk to a retirement guy but just trying to think through some things prior to wasting my/his time
Any thoughts about ways to "benefit" me vice the government regarding taxes going into retirement?. One thing I was thinking was, delay taking PBGC benefit for a full calendar year as well as delaying taking SS for that same year. Both of those payouts go up in subsequent years,....but more importantly....my tax rate would be 0% for that calendar year. Then do some sorta roth conversion on some monies and probably(hopefully) pay a lot less taxes to do that due to the 0% tax bracket to start ( before the taxable money that is getting converted)
Thoughts....will talk to a retirement guy but just trying to think through some things prior to wasting my/his time
#27
Gets Weekends Off
Joined APC: Mar 2007
Position: Petting Zoo
Posts: 2,068
Roth funds do have a bit more flexibility, which may be attractive
Backdoor Roth IRAs to me are a complete no brainer. I've paid taxes on the money. I can save it in a taxable account, or through a very simple process, render it tax free forever. Assuming I can afford to save the money, I can think of not a single reason to not backdoor it
As for the 401 k (a, etc), lot more room for opinion. It's good to have options
#28
Gets Weekends Off
Joined APC: Mar 2007
Position: Petting Zoo
Posts: 2,068
Buck,
Zero s tough. Even if you retiree on Dec 31st, you'll hopefully have some profit sharing the next year. But the overall strategy of post retirement conversions is a good one. Even if your income isn't zero it should be a lot lower than when you're working. My father did a lot of conversions in his first years of retirement
I hope you'll share the results of your conversation.
Zero s tough. Even if you retiree on Dec 31st, you'll hopefully have some profit sharing the next year. But the overall strategy of post retirement conversions is a good one. Even if your income isn't zero it should be a lot lower than when you're working. My father did a lot of conversions in his first years of retirement
I hope you'll share the results of your conversation.
#30
Creative Accounting?
Any thoughts about ways to "benefit" me vice the government regarding taxes going into retirement?. One thing I was thinking was, delay taking PBGC benefit for a full calendar year as well as delaying taking SS for that same year. Both of those payouts go up in subsequent years,....but more importantly....my tax rate would be 0% for that calendar year. Then do some sorta roth conversion on some monies and probably(hopefully) pay a lot less taxes to do that due to the 0% tax bracket to start ( before the taxable money that is getting converted)
Thoughts....will talk to a retirement guy but just trying to think through some things prior to wasting my/his time
Any thoughts about ways to "benefit" me vice the government regarding taxes going into retirement?. One thing I was thinking was, delay taking PBGC benefit for a full calendar year as well as delaying taking SS for that same year. Both of those payouts go up in subsequent years,....but more importantly....my tax rate would be 0% for that calendar year. Then do some sorta roth conversion on some monies and probably(hopefully) pay a lot less taxes to do that due to the 0% tax bracket to start ( before the taxable money that is getting converted)
Thoughts....will talk to a retirement guy but just trying to think through some things prior to wasting my/his time
Denny
Denny
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