Backdoor Roth advice

Forum|Forum|3 years ago
April 19, 2023
5 replies
37 views

Hello,

I currently contribute $6000/year to my traditional IRA from my post-tax paycheck.

I don't get any tax deduction because my wife is covered by a retirement plan at work, and we make over $129K. Hence, basically all my money in traditional IRA is "taxed" already.

Now, I want to do a backdoor Roth conversion. Many blogs say that if I do the conversion, then I have to pay taxes on the amount I convert, but it doesn't make sense in my case.

What to do about this?

Critter-3

Level 15

Every year you have made non deductible contributions a form 8606 to document the non deductible contribution so when you convert to the ROTH you don't need to pay taxes again on the same money... you will have to pay taxes on the earnings the IRA have made thru the years that are converted and NO you cannot only convert the prior year non deductible contributions only. Read the form 8606 instructions.

Hal_Al

Level 15

The non-deductible contributions cannot be converted in isolation from any other existing traditional and rollover IRA(s). It's best explained by example. Let's say you have a $10,000 balance in all your existing traditional IRAs and that balance consist of $3,000 in deductible contributions, $2,000 in previous non-deductible contributions and $5,000 in earnings (interest, dividends & capital gains). Your basis, in all your IRAs, is $2,000. This year you convert $5000 to a Roth. Only 20% of the $5000 conversion ($1000) will be tax free . TurboTax will divide that $2,000 basis by the $10,000 balance to arrive at the 20% tax free ratio. $4,000 of the conversion will be taxable.