Traditional and Roth Backdoor IRA?

tk01kj · ‎June 5, 2019

My total wages (1040 line 7) is $99k for 2018. I maxed out my 401k and HSA, so is this putting my AGI at $77k???

Also I want to make sure if I understand this correctly: I'm above the threshold here: https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-l... but I put 100% of my IRA contributions for 2018 already into a pre-tax IRA.

1. So will I not be able to deduct my trad IRA contribution on my tax return?

Am I eligible for Roth IRA contribution but I already contributed to a trad maxed at $5.5k? Since I contributed already I'm thinking of doing a backdoor IRA for both years since my company doesn’t offer the mega backdoor. I currently have two years of IRA money in the trad IRA in Schwab, total of $11k.

2. I lost some money on the $11k I originally bought, can I write this as a capital loss and deduct it on taxes?

3. Which form do I deduct HSA of $3450?

4. What's the deadline for doing the backdoor Roth?

Critter · ‎June 5, 2019

"I put 100% of my IRA contributions for 2018 already into a pre-tax IRA" ... do you mean a Traditional IRA that will not be deductible ?

And in that Traditional IRA do you have ANY contributions from the prior years that were deductible on a tax return ?

And instead of messing with this conversion you could have made a ROTH contribution directly ... see the much higher limits for that : I put 100% of my IRA contributions for 2018 already into a pre-tax IRA

dmertz · ‎June 5, 2019

Traditional IRA accounts are not designated pre-tax or after-tax. Its the contributions to a traditional IRA that are either pre-tax or after tax depending on whether or not you are eligible to deduct the contribution and, if you are eligible to deduct the contribution, whether or not you choose to deduct the contribution (making it a pre-tax contribution) or optionally treat it as a nondeductible (after-tax) contribution. Earnings in a traditional IRA are always pre-tax (tax deferred) regardless of the amount of basis you have in nondeductible contributions.

1. As I mentioned in a comment to your related question, your income amount and deduction amounts will leave you above the $73,000 threshold where you cease to be eligible to deduct your traditional IRA contribution because you are covered by a workplace retirement plan.

2. The investment in an IRA are not treated as capital investments; they are treated as ordinary investments. With the elimination of miscellaneous deductions subject to a 2% floor through 2025, you cannot get any deduction for unrecoverable basis in traditional IRA contributions should you choose to obtain a distribution of all of the money in your traditional IRAs during this timeframe.

3. When you enter your $3,450 HSA contribution into TurboTax, TurboTax will automatically prepare Form 8889 to report the contribution. Note that 2018 TurboTax has not yet been updated to allow a full $3,450 contribution for self-only coverage rather than the 2017 limit of $3,400, so TurboTax will treat the extra $50 as an excess contribution until the contribution limit in the software is updated.

4. A backdoor Roth involves a Roth conversion. The Roth conversion must be done by December 31, 2018 to be reportable on your 2018 tax return.

Because you are under the MAGI threshold where you would cease to be eligible to contribute directly to a Roth IRA, there is no need to do a backdoor Roth. If you have a loss in value of your traditional IRA, it would be better to obtain a return of contribution from your traditional IRA (with the distribution being an amount less than the contribution amount due to the investment losses you mentioned), then make a new, full contribution to the Roth IRA. You'll end up with more in retirement savings that way and it avoids dealing with the deadline of December 31 to perform a Roth conversion. The deadline for the new Roth contribution is the due date of your tax return without extensions. If you don't have an investment loss in the traditional IRA, simply ask the IRA custodian to do a recharacterization of the contribution to be a Roth IRA contribution instead. The deadline for doing a recharacterization of the contribution is the due date of your tax return, including extensions provided you timely file your tax return or timely file a request for extension.

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tk01kj · ‎June 5, 2019

1) Is the deadline for contributing to HSA for 2018 including employer's contributions April 2019 and I would prepare a form 8889? The amount enrolled is $3283.00 and this amount will equally be deducted from the remaining paychecks of the plan year. As my company follows the plan year from April 1 to March 31 of the following year, $3282 /4 (number of paychecks left in the current plan year) = $820.75.
Also, my company would contribute $167 towards my HSA, for a total of $3450 by March 31.

2) There seems to be some miscommunication here. I already contributed to a trad IRA. I can't uncontribute and then contribute to a Roth directly. The only solution now is pull the money out of the trad IRA into a Roth IRA, which is essentially a conversion. I want to convert both 2018 and 2017 into the Roth. Currently my trad IRA balance is at 10400, it was at 11200, so I'm at a $800 loss. Can I deduct the $800 loss on my taxes? If not, then should I wait till my trad IRA is at a profit (as long as before 2018) to make the conversion?

Next year 2019, my W-2 income will be higher than this year 2018, so I want to make the Roth conversion now, because I cannot deduct my contributions anyways because my gross income this year is $102400, less 401k deduction $18500, and I did not max out my HSA before end of 2018. Even if I did, it's still above $73000, right?
Can someone please help and correct every sentence I said above that's wrong?

dmertz · ‎June 5, 2019

1)  Yes, the deadline for employer contributions as well as your own contributions is the due date of your 2018 tax return without extensions, April 15, 2018, and must be included on the Form 8889 for the year for which the contributions are made.  You need to make sure that the contributions are being designated as being for 2018 because, by default, contributions are designated as being for the year in which the contribution is made.

2)  "I can't uncontribute and then contribute to a Roth directly."  Sure you can, at least for the 2018 contribution.  If you obtain a "return of contribution" of the 2018 contribution from the traditional IRA before the due date of your tax return it will be treated as never having been contributed.  Since the account value is down since the 2018 contribution was made the amount distributed will be the $5,500 contribution amount adjusted downward proportionately.  You'll then be able to make a full $5,500 contribution to the Roth IRA.  For the other amounts in the traditional IRA you can do a Roth conversion.

No, you can't deduct the $800 loss on your taxes.

If your Roth IRA is invested similarly to your traditional IRA, you are generally better off converting to Roth when the investments are down in value so that the recovery in value is eventually tax-free growth in the Roth IRA instead of tax-deferred growth in the traditional IRA.  You'll be converting more shares for the same tax liability when the share price is down.

Unless you have a decrease in AGI, you'll be in a similar situation next year.

tk01kj · ‎June 5, 2019

Say I want to backdoor Roth for both 2018 and 2017 trad IRA contributions because 2018 I am no longer eligible for the IRA deduction, and that say in December the trad IRA is down $X.

I just want to confirm there is no federal tax (and SSN and medicare) difference between 1) doing the Roth conversion on both 2018 and 2017 trad IRA contributions (so $11000 added to 2018 income) vs 2) refunding the trad IRA contribution for 2018, contributing directly to Roth for 2018, then backdoor on the 2017 contribution only (so $5500 added to 2018 income, then $5500 Roth directly)? If 2), would there be difference in refunding $5500 - $X, or refund $5500, the amount that I originally contributed in 2018?

Either way, a loss of $X in a backdoor conversion will not be written off as a tax deduction and the amount converted will be taxed at nominal rates, so either option should result in the same taxable event right?

Thanks,

Traditional and Roth Backdoor IRA?

Retirement tax questions

Retirement tax questions

Retirement tax questions

Retirement tax questions

Retirement tax questions