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balancedbias posted:Pro Rata rule screws this up, depending on how much is in there. It basically means you'll owe the taxes on the portion of gains/dividends that comes from the rollover IRA when you convert to Roth. You can't separate out the yearly contribution separately; it all gets counted together. Bummer. So I understand it correctly, you can't have any kind of IRA already in place, unless it's a current Roth IRA, correct? For instance, I have a Vanguard Roth IRA that I've only contributed post-tax Roth IRA money to. Would I be ok to do a backdoor Roth? Is there anyway around my wife's rollover IRA for her to backdoor as well? She has a current 403b/401a (I think - non-profit hospital) with Fidelity and her rollover IRA is with Vanguard. Could she roll her Vanguard rollover IRA into her Fidelity 403b/401a, close the Vanguard rollover IRA account, then do a backdoor Roth?
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Jul 19, 2019 02:15
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Cacafuego posted:I have a Vanguard Roth IRA that I've only contributed post-tax Roth IRA money to. Would I be ok to do a backdoor Roth? Yup Cacafuego posted:Could she roll her Vanguard rollover IRA into her Fidelity 403b/401a, close the Vanguard rollover IRA account, then do a backdoor Roth? Yup
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Jul 19, 2019 02:21
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Tyro posted:Yup Ok, now how does this work: She worked for company A for about 5 years, then moved to company B. She rolled over her A401k to B401k. When she left B and went to company C, she rolled that 401k into a rollover IRA with Merrill Lynch. She then made post-tax contributions to this rollover IRA account. So her rollover IRA (now with Vanguard) has a mixture of pre-tax (from the 401ks) and post-tax (post-tax contributions) dollars in it. Can this still be rolled over into her current 403b/401a account? How will they tell what are pre vs what are post-tax dollars?
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Jul 19, 2019 03:05
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Cacafuego posted:Ok, now how does this work:
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Jul 19, 2019 14:40
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spf3million posted:What do you mean by "then made post-tax contributions to this rollover IRA account"? By post-tax, do you mean non-deductible contributions to the trad-IRA? I think so? I'll try to explain as well as I can, but this was done prior to us getting together, so I'm passing on information that she's told me. I'm also not well versed on the proper lingo, so I may be getting stuff wrong. I'm trying to figure it all out though! As far as I know there are 2 sources of contributions to her current Vanguard rollover IRA: 1. Previous 401ks (obviously pre-tax) 2. Post-tax contributions that we've made over the past few years If I read the information correctly, if the funds in the rollover IRA were only from rolling over previous 401ks, you'd be able to roll it into a current 401k/403b/401a if the current vendor (Fidelity) would allow it. But since her rollover IRA contains pre-tax and post-tax dollars, I don't know if that would be possible. From what I'm reading online (Motley Fool), it says you didn't used to be allowed to do that, but now you can. Is that correct? Looking at Fidelity's Transfer/Rollover/Exchange Form Instructions says A Rollover IRA. This is a rollover transaction. After-tax value may not be rolled from an IRA.. Is there a way to separate pre-tax and after-tax contributions in the current rollover IRA? Why do they allow you to mix pre-tax and after-tax dollars in these things?
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Jul 19, 2019 15:46
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Cacafuego posted:I think so? I'll try to explain as well as I can, but this was done prior to us getting together, so I'm passing on information that she's told me. I'm also not well versed on the proper lingo, so I may be getting stuff wrong. I'm trying to figure it all out though! As far as I know there are 2 sources of contributions to her current Vanguard rollover IRA: There are a lot of overly complicated nuanced terms that are very important here. 1. Post-Tax Dollars - But were you able to take them as a deduction on your tax return for the IRA year you deposited the money? If so, it's pre-tax contributions like any other. Roll it in. 2. After-Tax Dollars / "Non-Deductible Traditional IRA Contributions" - You dumped money into a Traditional IRA but were beyond the phaseout for deducting it from your taxes on the IRA tax year you deposited them against. #2 is a problem. I'm wondering what would happen if I just dumped my comingled traditional IRA w/ non-deductible contributions into my 401k and didn't tell anyone. In theory the IRS shouldn't care because it's getting double taxed. Does anyone know how to get the money separated out? I have definitely lost some of my basis accounting over the years, and tax transcripts don't show them despite having a line for them.
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Jul 19, 2019 15:54
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H110Hawk posted:There are a lot of overly complicated nuanced terms that are very important here. Hmm, let me see if I can clear this up: 1. I don't know for sure, but I don't think so. We did taxes through Turbotax and just plugged things in when it prompted us to. It spit out a 1040 - where would I look on here to see? 4a "IRAs, pensions, and annuities" is blank. 2. I believe this would be what we did. Our MAGI was >$121k for 2018, so from what I'm reading it was above the limit for deductible contributions.
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Jul 19, 2019 16:24
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Do a Backdoor Roth conversion for the amount of the nondeductible contributions (basis). Then roll the remainder into her 401(k). Make sure the latter is done by the end of the year, so that your TIRA balance is zero on 12/31.
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Jul 21, 2019 04:23
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Adhemar posted:Do a Backdoor Roth conversion for the amount of the nondeductible contributions (basis). Then roll the remainder into her 401(k). Make sure the latter is done by the end of the year, so that your TIRA balance is zero on 12/31. Ok, that makes sense to me and can give that a try. Is there anyway to figure out how much the nondeductible contributions were? What about separating gains?
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Jul 21, 2019 13:24
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I have some single stock positions I’ve had for many years with large long term capital gains. My long term goal is to have that money in mutual funds and minimize capital gains. Assume $50k in gains and 15% tax rate. Plans I can think of: * Sell it all tomorrow, pay the $7500 out of the proceeds and move on. * Sell some (5%) each month and spread the tax burden over a few years, maybe cancel out with some capital losses when the market is down. * Some fancy trick to defer the taxes until we are in the 0% tax bracket (in retirement).
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Jul 21, 2019 14:54
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smackfu posted:I have some single stock positions I’ve had for many years with large long term capital gains. My long term goal is to have that money in mutual funds and minimize capital gains. Assume $50k in gains and 15% tax rate. Are you doing that to reduce the risk involved in being concentrated in a single stock? The most tax-advantageous approach would probably be 2. A large income boost could disqualify you from tax breaks and unless you already have capital gains losses rolled forward it doesn't give you the option to reduce your taxes. Option 1 is a good idea if you're more worried about risk than about the tax burden. I don't think 3 is really an option unfortunately. Don't forget to research and potentially pay estimated taxes as you sell, btw. The penalties for underpayment aren't huge but they aren't nothing.
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Jul 21, 2019 15:15
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You could donate it to a charity without paying taxes. This is in a regular taxable account, yes?
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Jul 21, 2019 15:39
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smackfu posted:I have some single stock positions I’ve had for many years with large long term capital gains. My long term goal is to have that money in mutual funds and minimize capital gains. Assume $50k in gains and 15% tax rate. Why are you worried about paying long term cap gains? Just pay the piper unless you have something you can tax loss harvest. Unless you know that next year you're going to have no income all year or something 15% is an amazing rate to pay.
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Jul 21, 2019 15:43
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Adhemar posted:Do a Backdoor Roth conversion for the amount of the nondeductible contributions (basis). Then roll the remainder into her 401(k). Make sure the latter is done by the end of the year, so that your TIRA balance is zero on 12/31.
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Jul 21, 2019 15:49
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Adhemar posted:Do a Backdoor Roth conversion for the amount of the nondeductible contributions (basis). Then roll the remainder into her 401(k). Make sure the latter is done by the end of the year, so that your TIRA balance is zero on 12/31. Why does the TIRA balance have to be zero on 12/31? I have a few bucks in our traditional IRAs from doing backdoor roths for the past few years.
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Jul 21, 2019 18:31
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H110Hawk posted:Why are you worried about paying long term cap gains? Just pay the piper unless you have something you can tax loss harvest. Unless you know that next year you're going to have no income all year or something 15% is an amazing rate to pay. Mainly fear of messing up our otherwise fairly regular taxes. I think we are already above most of the income limits though.
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Jul 21, 2019 19:13
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smackfu posted:Mainly fear of messing up our otherwise fairly regular taxes. I think we are already above most of the income limits though. Cap gains are easy if you sell everything in one huge lot.
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Jul 21, 2019 19:42
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H110Hawk posted:Cap gains are easy if you sell everything in one huge lot. That reminds me -- I'm gonna be selling off some employee shares soon as a side-effect of leaving my current job. Is it possible to "convert" those shares into a different investment and delay paying taxes? Or are the capital gains taxes mandatory on every single sale?
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Jul 21, 2019 19:45
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TooMuchAbstraction posted:That reminds me -- I'm gonna be selling off some employee shares soon as a side-effect of leaving my current job. Is it possible to "convert" those shares into a different investment and delay paying taxes? Or are the capital gains taxes mandatory on every single sale? In general, capital gains taxes are not per sale. You add up all your gains and losses for the year and pay tax on the net. Like most tax stuff, there are ways around it if your amount is large enough to warrant going through the trouble. One of the new instruments to defer capital gains in taxable accounts is Opportunity Zones. Here's the IRS FAQ https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
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Jul 21, 2019 20:11
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Is it possible to fund a Roth IRA with in-kind contributions out of a taxable brokerage account? Not sure I'll have enough cash to contribute the full amount next year without dipping into savings, but I do have VTSAX in my brokerage that I could use. Or would I have to sell off some of my shares and and contribute the settled cash? Or would it be better to just save up during the year (2020) and contribute normally? Both IRA and Brokerage are on Vanguard, FYI.
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Jul 21, 2019 21:22
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Ur Getting Fatter posted:Is it possible to fund a Roth IRA with in-kind contributions out of a taxable brokerage account? Not sure I'll have enough cash to contribute the full amount next year without dipping into savings, but I do have VTSAX in my brokerage that I could use. Whether you do it by selling shares or just wait to save up is really up to you. I'd personally just try to save more to avoid capital gains taxes on the taxable account but if you wouldn't be able to save enough extra in order to max out your IRA contribution then I'd sell some taxable (plus pay the cap gains tax) so you can max out the tax-free contribution bucket.
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Jul 21, 2019 21:34
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I hadn't considered the cap gains tax. I think I'll most likely try and save up during 2020 and if it looks like I'm not gonna make it then sell off whichever brokerage lot has gained the least (or is hopefully in the red). Thanks!
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Jul 21, 2019 21:39
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Ur Getting Fatter posted:I hadn't considered the cap gains tax. I wouldn't miss out on the 2019 limit just to avoid tax on $6k. It's the last time you would ever pay tax on that money. Overall I don't think it's worth avoiding the 15% ltcg tax if you have a better use for the money.
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Jul 21, 2019 22:12
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H110Hawk posted:I wouldn't miss out on the 2019 limit just to avoid tax on $6k. It's the last time you would ever pay tax on that money. Yeah, I meant to say save up before the april 2020 cutoff. My wife and I have sunk quite a bit of money into her business and it's started turning a profit. If the holidays are especially good then we should have more than enough to cover the contributions, but for planning purposes I'm working on the assumption that we won't so I want a Plan B lined up. Either way I should know before tax season.
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Jul 21, 2019 22:51
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Ur Getting Fatter posted:Yeah, I meant to say save up before the april 2020 cutoff. Perfect.
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Jul 21, 2019 22:55
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Cacafuego posted:Ok, that makes sense to me and can give that a try. Is there anyway to figure out how much the nondeductible contributions were? What about separating gains? You should have a record of the contributions you made and did not deduct. That’s the amount you want to convert. The gains have not been taxed and should be left in the TIRA and then rolled into the 401k along with any other pretax money you had in there.
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Jul 21, 2019 22:57
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spf3million posted:If he does this he'll be subject to the pro-rata rule since there are additional trad-IRA funds aside from the non-deductible contributions. No, there won’t be, if he rolled them into the 401k before 12/31. That’s why hitting that deadline is so important.
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Jul 21, 2019 22:59
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Residency Evil posted:Why does the TIRA balance have to be zero on 12/31? I have a few bucks in our traditional IRAs from doing backdoor roths for the past few years. See above. A few dollars is probably fine.
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Jul 21, 2019 22:59
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Anarkii posted:In general, capital gains taxes are not per sale. You add up all your gains and losses for the year and pay tax on the net. Thanks. I'd just be transferring it all to an index fund, so it sounds like I shouldn't need to worry about it.
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Jul 22, 2019 02:27
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What do you do with the returns of your bonds? Do you automatically have them reinvested or do you stash them away and then use those to re-balance your portfolio by buying what you need more of? The latter is what my FA recommended, although I've also been given the exact opposite advice.
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Jul 23, 2019 02:56
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DreadCthulhu posted:What do you do with the returns of your bonds? Do you automatically have them reinvested or do you stash them away and then use those to re-balance your portfolio by buying what you need more of? The latter is what my FA recommended, although I've also been given the exact opposite advice. I always transfer to bank account (for both stocks and bonds) to make rebalancing easier. It really depends on how well you'll stick to making regular purchases though, and whether you want to make that additional effort.
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Jul 23, 2019 03:17
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Eldred posted:I always transfer to bank account (for both stocks and bonds) to make rebalancing easier. It really depends on how well you'll stick to making regular purchases though, and whether you want to make that additional effort. How often do you purchase from that account? Monthly, assuming enough has accumulated?
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Jul 23, 2019 03:20
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DreadCthulhu posted:How often do you purchase from that account? Monthly, assuming enough has accumulated? Yeah, I have a monthly calendar reminder to buy. Some people do scheduled transactions, but my purchases are a little irregular in amount.
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Jul 23, 2019 03:52
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Does anybody have strong opinions on the kind of bond funds to go with? I could keep it super simple and park everything in a total bond fund like BND, but I've had FAs suggest a combination of Intermediate Corporate + Short Term Corporate instead, which allegedly has better returns and is still very safe. Does that have any validity?
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Jul 24, 2019 02:49
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Vanguard recommends total bond and Jack Bogle recommends US treasuries. Maybe split the difference? quote:Because of this, says John C. Bogle, founder of the Vanguard Group, total bond indexes “are deeply flawed — and that’s coming from an indexer.” He adds that individual investors should keep only about one-third of their bond stake in Treasuries and government debt, reflecting the market’s mix based on private investors such as pension and mutual funds.
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Jul 24, 2019 02:59
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What does it mean to automatically reinvest capital gains in the context of funds / ETFs as an option in Vanguard? I get reinvesting dividends, but capital gains?
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Jul 24, 2019 17:42
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DreadCthulhu posted:What does it mean to automatically reinvest capital gains in the context of funds / ETFs as an option in Vanguard? I get reinvesting dividends, but capital gains? Gazpacho fucked around with this message at 19:32 on Jul 24, 2019 |
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Jul 24, 2019 19:12
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Gazpacho posted:When a mutual fund cashes out an investment position, the management cannot reinvest the profits immediately but must distribute them back to the investors. Therefore capital gains are an additional cash stream along with income that you have the option to reinvest or not. You don't get a distribution for every position sold. Most mutual funds distribute capital gains only once a year in December.
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Jul 24, 2019 22:26
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spf3million posted:If he does this he'll be subject to the pro-rata rule since there are additional trad-IRA funds aside from the non-deductible contributions. This was the kind of info I’m looking for: The Tax Consequences of a "Backdoor" Roth IRA I think it’s saying that we’d have to pay taxes on the pre-tax funds that were in the rollover IRA, is that correct? How do we figure out the percentages for what is pre-tax $ and what is after-tax $? Can a CPA figure this out, or will vanguard know what the differences are? Are the taxes auto-withdrawn? Lotsa confusing questions that I’m unable to figure out myself.
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Jul 24, 2019 23:46
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Anarkii posted:You don't get a distribution for every position sold. Most mutual funds distribute capital gains only once a year in December.
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Jul 25, 2019 02:16
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