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OGDanDogg posted:Could you elaborate on the last part? I know that separate accounts is important if you're doing the roth conversion horse race relations recharacterization madness, but that doesn't seem to be what you're talking about. Separate accounts specifically will not protect you, the irs would look across all amounts for any deductible contributions when considering taxation of a rollover to roth.
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Jan 6, 2017 14:55
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pr0zac posted:Follow-up backdoor Roth IRA question. If I expect my net income to drop significantly from 2016->2017->2018 I should wait to do the conversion from IRA->Roth IRA after my income has dropped because I am taxed on the conversion amount correct? Theres no benefit to doing it immediately that I'm missing? The conversion funds become available for withdrawal as contributions in 5 years. See roth ladder for early retirement types.
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Jan 6, 2017 14:58
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Ropes4u posted:Theoretically if someone were to retire in 3 years at the age of 55, could they access their 401k funds without penalty? Gotta be 59 1/2 or have special circumstances to cash out a 401k with no penalty.
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Jan 6, 2017 14:59
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Leon Trotsky 2012 posted:Gotta be 59 1/2 or have special circumstances to cash out a 401k with no penalty. Nope, just Google 401k 55 rule.
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Jan 6, 2017 15:06
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baquerd posted:Nope, just Google 401k 55 rule. Doh, you're right. I was just thinking of the standard withdrawal rules.
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Jan 6, 2017 15:11
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baquerd posted:Separate accounts specifically will not protect you, the irs would look across all amounts for any deductible contributions when considering taxation of a rollover to roth. I think I may have muddied the issue by bringing up separate accounts and the roth horserace (http://www.madfientist.com/roth-ira-horse-race/). I was just wondering what "rules" were involved in the statement "And remember first that you can't have any non-Roth IRA balances unless you want to pay taxes because of rules." Edit: After some investigation, I think this has to do with having a traditional IRA with after-tax contributions. If you have multiple IRAs with a mix of pre and post-tax contributions, the IRS considers the overall ratio across accounts when determining what's taxable during the conversion. OGDanDogg fucked around with this message at 16:26 on Jan 6, 2017 |
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Jan 6, 2017 16:11
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why would we have to pay tax on a Traditional IRA -> Roth IRA conversion if the traditional IRA was funded with after-tax dollars from our bank accounts? Or do you only have to pay additional taxes if you somehow had a pre-tax traditional IRA (does that even exist? I thought it didn't)
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Jan 6, 2017 18:08
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baquerd posted:The conversion funds become available for withdrawal as contributions in 5 years. See roth ladder for early retirement types. Unfortunately nothing in this post makes any sense to me in a way that answers my question. Ok reread it a few times, I think you're saying one benefit of doing the conversion immediately is I will be able to withdrawal the contributions sooner? Everything in my traditional IRA is a 401k rollover, so I don't think that applies to me. I don't plan on touching anything in my Roth until retirement anyway since I have plenty in taxable accounts. Will read on roth ladders. pr0zac fucked around with this message at 18:16 on Jan 6, 2017 |
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Jan 6, 2017 18:12
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Blinky2099 posted:why would we have to pay tax on a Traditional IRA -> Roth IRA conversion if the traditional IRA was funded with after-tax dollars from our bank accounts? A pretax traditional IRA is typically the only kind of traditional IRA, and it's the whole point of it.
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Jan 6, 2017 18:33
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Droo posted:A pretax traditional IRA is typically the only kind of traditional IRA, and it's the whole point of it. I guess I'm still completely confused as to how one would go about depositing into a traditional IRA with pretax dollars. I already deposited into a Vanguard Traditional IRA with post-tax dollars from my bank account.
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Jan 6, 2017 18:44
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You get a deduction when you file your taxes, if you remember to claim it.
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Jan 6, 2017 18:47
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I'm basing all of my potential misinformation/misinterpretations from the pro-rata section on http://www.goodfinancialcents.com/roth-ira-conversion-tax-rules/ It had never occurred to me that you would even put post-tax money into a non-Roth IRA once taxes are filed (since I've always had employer 401ks), so that's why I was confused as to how you could even have weird tax considerations in a Roth rollover other than "it's all considered income." OGDanDogg fucked around with this message at 19:09 on Jan 6, 2017 |
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Jan 6, 2017 19:01
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OGDanDogg posted:I think I may have muddied the issue by bringing up separate accounts and the roth horserace (http://www.madfientist.com/roth-ira-horse-race/). I was just wondering what "rules" were involved in the statement "And remember first that you can't have any non-Roth IRA balances unless you want to pay taxes because of rules." Correct, Google 'pro-rata rule' which has all the information. If you want a clean backdoor Roth with no taxes due, you want to have nothing in traditional IRA accounts.
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Jan 6, 2017 19:01
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Thanks for confirming. Luckily my situation is fairly simple, as I have a small balance employer 401k that I transferred to vanguard that I will be slowly converting to my roth account.
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Jan 6, 2017 19:28
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Leon Trotsky 2012 posted:Gotta be 59 1/2 or have special circumstances to cash out a 401k with no penalty. Better start saving more outside of my 401k unless I'm tired of working is an acceptable circumstance...
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Jan 6, 2017 19:44
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Ropes4u posted:Better start saving more outside of my 401k unless I'm tired of working is an acceptable circumstance... It was posted right after my original post, but the 59 1/2 rule is the standard withdrawal rule. If you decide to retire full time or get fired after 55, then you can withdraw without the 10% penalty.
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Jan 6, 2017 19:51
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Tangentially related to IRAs and backdoors, I've got a quick question about limits that I think I already know the answer to. Non-sheltered capital gains count toward your MAGI for Roth IRA eligibility, right? On salary and bonuses minus 401k/HSA I'll be close but not over the Roth IRA phase out limit. No problem there. But this year I'm considering selling a bunch of equities in my taxable portfolio that have gained substantially in the last 5 years. As in approximately doubled. It'd be for putting toward a new car, so it'd be in the 20-30k range, which would mean about 10-15k in additional capital gains income for the year. Assuming no big upheavals this year, that extra 10-15k would likely push me into Roth IRA phase out territory. If I'm intending to do this, would it be wise for me to do a backdoor just in case? I don't have any traditional IRA holdings at all right now. Or I suppose I could just finance more of the theoretical car since rates are so low and not recognize as many gains, but that's really just pushing off the "problem" until later.
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Jan 6, 2017 19:57
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Yes, it counts. There's no drawback to using the backdoor all the time, except your funds stay uninvested for another day or two.
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Jan 6, 2017 20:39
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Leon Trotsky 2012 posted:It was posted right after my original post, but the 59 1/2 rule is the standard withdrawal rule. Am I screwed if I roll into consulting or do some pet time contract work?
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Jan 6, 2017 22:13
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Ropes4u posted:Am I screwed if I roll into consulting or do some pet time contract work? Is dog walking really that lucrative? 
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Jan 6, 2017 22:17
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Ropes4u posted:Am I screwed if I roll into consulting or do some pet time contract work? No, you just have to no longer have the job that provided the original 401k account.
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Jan 6, 2017 22:18
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Just to clarify a bit more, you ARE responsible for taxes when doing a Trad IRA --> Roth IRA conversion when doing the backdoor. But, you are only responsible if the value of the Trad IRA increases while your funds settle. I just did mine and there's ~1 week of where the money is in your Trad IRA and before you can exchange it into the Roth. Whatever gains you make on your $5500 in that week (mine are $57 right now between Jan 2 and now), you are responsible for taxes on, not the whole balance.
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Jan 6, 2017 22:23
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Henrik Zetterberg posted:Just to clarify a bit more, you ARE responsible for taxes when doing a Trad IRA --> Roth IRA conversion when doing the backdoor. But, you are only responsible if the value of the Trad IRA increases while your funds settle. I just did mine and there's ~1 week of where the money is in your Trad IRA and before you can exchange it into the Roth. Whatever gains you make on your $5500 in that week (mine are $57 right now between Jan 2 and now), you are responsible for taxes on, not the whole balance. I made the mistake of investing it into a fund rather than just waiting for the money market thing to clear so it'll probably be even longer to clear for me but whatever, if the market goes up by a significant amount enough for me to care about the taxes and 10% penalty on the gains then the rest of my accounts will have increased to the point where I can quit my job and retire early so I don't think it's gonna be a big deal. I guess it's just something to take into account when doing taxes but I assume Vanguard will send me that form in time for 2017 filing.
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Jan 6, 2017 22:44
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My 401k allows me to contribute to a Roth. I can't decide if I should start maxing that out or if I should open a regular investment account. I am 52, she is 40 100-135k a year income Currently maxing my traditional 401k 401k is in 2 vanguard target retirement index funds. I can easily contribute another 5% so I don't see a down side but maybe I am missing something. Edit: I am also eligible for catch-up contributions which means I can save myself into poverty. Ropes4u fucked around with this message at 00:46 on Jan 7, 2017 |
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Jan 7, 2017 00:29
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Ropes4u posted:My 401k allows me to contribute to a Roth. I can't decide if I should start maxing that out or if I should open a regular investment account. Is that your combined salary? Are you married? Those questions aside, you don't get to contribute anything more to a roth 401k since you are maxing in traditional 401k. You'd have to contribute less to the trad to open space up for the roth.
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Jan 7, 2017 02:14
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What retirement investment vehicles are open to disabled folks? My mom's not yet retirement age, has some cash she'd like to invest for a couple more decades, but she's permanently disabled and can't work. As such, it doesn't seem like 401k or IRAs are open to her. When I Google this sort of stuff I see that most early withdrawal penalties for retirement accounts disappear if someone becomes disabled, but I don't see much in the way of contribution options. Is she limited to taxable investments?
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Jan 7, 2017 03:37
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baquerd posted:Is that your combined salary? Are you married? Married, three grown kids on their own, she is a stay at home cook and professional dog walker.
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Jan 7, 2017 04:38
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Star War Sex Parrot posted:What retirement investment vehicles are open to disabled folks? My mom's not yet retirement age, has some cash she'd like to invest for a couple more decades, but she's permanently disabled and can't work. As such, it doesn't seem like 401k or IRAs are open to her. When I Google this sort of stuff I see that most early withdrawal penalties for retirement accounts disappear if someone becomes disabled, but I don't see much in the way of contribution options.
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Jan 7, 2017 06:07
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ShadowHawk posted:The relevant rule here is that your reported annual income on your federal taxes must be at least what you contribute to the IRA. Does she have any income at all (like disability payments)?
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Jan 7, 2017 07:44
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Star War Sex Parrot posted:I think she collects social security but that's not taxable income AFAIK. If you have a giant pool of savings in a taxable account you may be able to structure it such that you can claim the income from it as non long-term capital gains. And, presumably, this scheme only makes sense if you have a bunch of savings waiting to get into a retirement account, so that might be your best bet. Won't work if your investments shrink over the year due to market contraction, though. edit: nope, this is taxable interest but not earned income ShadowHawk fucked around with this message at 08:22 on Jan 7, 2017 |
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Jan 7, 2017 07:58
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Star War Sex Parrot posted:I think she collects social security but that's not taxable income AFAIK. She can't contribute to any kind of IRA without "earned" income. https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income She could contribute to an HSA if she has a qualifying health insurance policy, or a 529 plan which obviously has to be spent on schooling for someone or gets penalized. I can't think of anything that would really accomplish what you want though. If your mom is permanently disabled and on disability it is likely that she is in either the 10% or 15% tax bracket, in which case her dividend and long term capital gains tax rates are 0% anyway. So as of right now at least, her taxable account is probably functionally identical to a Roth IRA anyway. Edit: if she's married she could contribute to an IRA based on spousal income. But I'm assuming you would have mentioned that.
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Jan 7, 2017 08:10
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Droo posted:She can't contribute to any kind of IRA without "earned" income. Droo posted:I can't think of anything that would really accomplish what you want though. If your mom is permanently disabled and on disability it is likely that she is in either the 10% or 15% tax bracket, in which case her dividend and long term capital gains tax rates are 0% anyway. So as of right now at least, her taxable account is probably functionally identical to a Roth IRA anyway. Thanks again everyone. Star War Sex Parrot fucked around with this message at 10:48 on Jan 7, 2017 |
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Jan 7, 2017 10:29
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Droo posted:Edit: if she's married she could contribute to an IRA based on spousal income. But I'm assuming you would have mentioned that. Edit: now I'm wondering if his pension means she's not collecting SSDI anymore. I need to find out more about her exact income sources. Either way I still don't see how I get a large sum of money into tax-advantaged space for her. Star War Sex Parrot fucked around with this message at 10:58 on Jan 7, 2017 |
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Jan 7, 2017 10:49
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Kind of a simple question, but if all of my income is going to be W-2 moving forward, as a single, unmarried person my maximum tax-advantaged retirement space is only 5.5k (IRA) + 18k (401k), correct? The rest has to go in regular accounts? When I married and my spouse works, it doubles, correct?
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Jan 7, 2017 20:33
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Residency Evil posted:Kind of a simple question, but if all of my income is going to be W-2 moving forward, as a single, unmarried person my maximum tax-advantaged retirement space is only 5.5k (IRA) + 18k (401k), correct? The rest has to go in regular accounts? When I married and my spouse works, it doubles, correct?
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Jan 7, 2017 20:37
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Star War Sex Parrot posted:I think you could start playing with backdoor Roth stuff to get more money into tax-advantaged vehicles, but I also don't understand those well enough to say for sure. Lots of discussion the last page or so though. I was counting the Backdoor Roth as part of the IRA. Can I open both a Roth IRA as well as an IRA for a total of 11k/year?
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Jan 7, 2017 20:46
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Residency Evil posted:Kind of a simple question, but if all of my income is going to be W-2 moving forward, as a single, unmarried person my maximum tax-advantaged retirement space is only 5.5k (IRA) + 18k (401k), correct? The rest has to go in regular accounts? When I married and my spouse works, it doubles, correct? As a doctor I imagine your company is already maxing out your pension/profit sharing/whatever they call it for another ~$36,000? If not, under the right set of circumstances you could potentially do a mega backdoor roth 401k contribution depending on your 401k plan rules. If you have no control over the employer benefits situation, there isn't really much else you can do though. Once you get married, your limit doesn't double - your spouse must be eligible for her own 401k plan at her own job, and have her own paycheck reduced to fund it. You could pretty much always fund her IRA for her though. Residency Evil posted:I was counting the Backdoor Roth as part of the IRA. Can I open both a Roth IRA as well as an IRA for a total of 11k/year? No
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Jan 7, 2017 20:47
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Find a high level job at a non-profit hospital where you're eligible for the bomb-rear end super-combo of the 403 (b) for up to $52,000 and a 457 for an additional $18,000 and then marry another physician at the same hospital for the patently absurd $140,000 of tax protected pre-tax and Roth money.
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Jan 7, 2017 20:52
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getting a job with an after tax 401k plan into whatever its called, super mega backdoor roth conversion for 52k is the dream. it seems like highly compensated employee issues often prevent employers from being able to offer this but its worth a try.
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Jan 7, 2017 21:07
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EAT FASTER!!!!!! posted:Find a high level job at a non-profit hospital where you're eligible for the bomb-rear end super-combo of the 403 (b) for up to $52,000 and a 457 for an additional $18,000 and then marry another physician at the same hospital for the patently absurd $140,000 of tax protected pre-tax and Roth money.  I need to figure out what my exact retirement plan is going to be, but hopefully it's this.
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Jan 7, 2017 21:10
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