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Returning Member

Backdoor Roth IRA

Hi my household income is exceeding the allowed AGI for a direct Roth IRA contribution. How would I utilize the Roth IRA backdoor conversion moving forward in future years? Should I fund a traditional IRA with 6,000 and immediately convert it to my Roth IRA? When should I do this? In the current year or before April of the following year? Also, this year I have some 2019 contributions into my Roth IRA already, how should I go about refunding the contributions?

1 Reply
Level 15

Backdoor Roth IRA

#1)  This so-called “back-door Roth”  method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

It is done by making a non-deductible Traditional IRA contribution which must be reported on a 8606 form as part of the tax years tax return, and then usually immediately having the entire Traditional IRA converted it a Roth before there can be any earnings in the Traditional IRA,  otherwise if there is a delay then any earnings will be taxable income.

When the conversion is reported, when done properly, the non-deductible amount reported on the 8606 form will offset the taxable amount of the Roth conversion.

While a 2019 IRA contribution can be made up to April 15 of the following tax year, any Roth conversion must be completed before December 31 of 2019 to be a 2019 conversion.

#2 If you make a 2019 excess Roth contribution then have the Roth custodian do a "return of contribution" (which will also return any earnings attributed to the excess) and not  a normal distribution.   When you report the return of contribution on your 2019 tax return only the earnings (if any) will be taxable. 

Instead of the return of contribution, you could have the Roth custodian recharacterize the Roth contribution to a Traditional IRA as if the Roth contribution never happened and then convert the Traditional IRA to a Roth (assuming that you have not already contributed the maximum amount to a Traditional IRA).   Any earnings attributed to the Roth would also be moved to the Traditional IRA and would be taxable income to you in 2019 when converted to the Roth.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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