Roth conversion question
09-08-2015, 11:50 AM
#1
Gets Weekends Off
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Joined APC: Sep 2007
Position: Reverse Apexed
Posts: 123
Roth conversion question
The TA allows for the conversion of our money currently in our 401k and defined contribution plans into a Roth once they are in the newly created PRSP.
When you convert a 401k, you will pay taxes on the money. You got a tax break on the money when it went into the 401k and now you basically have to make up for that.
What about the DC? Will there be taxes owed when converting those monies into a Roth?
Thanks guys!
-Speed
When you convert a 401k, you will pay taxes on the money. You got a tax break on the money when it went into the 401k and now you basically have to make up for that.
What about the DC? Will there be taxes owed when converting those monies into a Roth?
Thanks guys!
-Speed
09-08-2015, 12:17 PM
#2
Gets Weekends Off
Joined APC: Nov 2006
Position: 767 FO
Posts: 8,047
Originally Posted by purple speed
The TA allows for the conversion of our money currently in our 401k and defined contribution plans into a Roth once they are in the newly created PRSP.
When you convert a 401k, you will pay taxes on the money. You got a tax break on the money when it went into the 401k and now you basically have to make up for that.
What about the DC? Will there be taxes owed when converting those monies into a Roth?
Thanks guys!
-Speed
When you convert a 401k, you will pay taxes on the money. You got a tax break on the money when it went into the 401k and now you basically have to make up for that.
What about the DC? Will there be taxes owed when converting those monies into a Roth?
Thanks guys!
-Speed
09-08-2015, 01:14 PM
#3
Gets Weekends Off
Joined APC: Jul 2014
Posts: 296
This might be of interest, Not my words but an article about converting.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
09-08-2015, 07:21 PM
#4
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Joined APC: Nov 2008
Posts: 46
Originally Posted by Viper446
This might be of interest, Not my words but an article about converting.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
Thanks ... Good Info!
09-11-2015, 01:43 AM
#5
Gets Weekends Off
Joined APC: Feb 2013
Posts: 1,339
Originally Posted by Viper446
This might be of interest, Not my words but an article about converting.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
The backdoor Roth
The so-called backdoor Roth is one way to avoid a big tax bill when you’re over the income limit for a Roth.
In that case, if you’re also covered by an employer retirement plan like a 401k, you likely wouldn’t be able to fund a deductible IRA, because of IRS rules. But you could contribute to a nondeductible IRA, and then convert right away to a Roth.
When you contribute to a nondeductible IRA, you’re in effect depositing after-tax dollars, so you’d only owe tax on the earnings. If you do the Roth conversion within a few days, the tax will likely be nominal.
This method is most beneficial, tax-wise, if you don’t have other, deductible IRAs. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your IRAs.
As you can see in in this Roth conversion example, if you have $15,000 in traditional IRAs for which you’ve received a deduction, and want to deposit $5,000 into a nondeductible IRA and convert it to a Roth, you would divide $5,000 by $20,000 (the total value of all IRAs) to get the amount you can convert tax-free, which is 25%. So you’d owe tax on the other $3,750, based on your current tax bracket.
I've been doing the back-door Roth IRA ($5,500) for several years (hit the income limit) but this appears to be something else?
Thanks
09-11-2015, 05:53 AM
#6
Gets Weekends Off
Joined APC: Nov 2013
Posts: 2,756
Originally Posted by whalesurfer
A brownie outsider looking in - would you happen to have another link to that site? The two links in your post take me to: "Sorry! This site is experiencing technical difficulties."
I've been doing the back-door Roth IRA ($5,500) for several years (hit the income limit) but this appears to be something else?
Thanks
I've been doing the back-door Roth IRA ($5,500) for several years (hit the income limit) but this appears to be something else?
Thanks
Not speaking for him, but it looks like he's talking about the tax consequences if you have deductible IRA's. If you don't, it doesn't apply. I'd think long and hard about doing a back door Roth if I had to pay a bunch of taxes on it, because I had deductible IRAs. Since I don't, it's pretty much a no brainer. For those who don't do this, Vanguard makes it easy, and you can view everything with your FedEx account.
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