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Backdoor ROTH
Posted on 10/28/24 at 10:54 am
Posted on 10/28/24 at 10:54 am
I have an IRA (Labeled “Rollover IRA” by Schwab) Where too small 401K’s from my first two employers out of college were rolled into.
I’d like to look into transferring them into a Roth. Problem is, I have no paperwork on those accounts. I spoke with CPA about doing this. They basically stated I couldn’t do this, bc I would need to provide the contribution amounts made within the 401K’s.
Does this sound correct, what are my options to get this done?
I’d like to look into transferring them into a Roth. Problem is, I have no paperwork on those accounts. I spoke with CPA about doing this. They basically stated I couldn’t do this, bc I would need to provide the contribution amounts made within the 401K’s.
Does this sound correct, what are my options to get this done?
2
Posted on 10/28/24 at 11:04 am to amberjack
ChatGPT:
Your CPA’s concern likely stems from needing to determine whether any portion of those 401(k) contributions were post-tax, which would impact the taxes owed on a Roth conversion. Generally, if the rollover IRA contains only pre-tax funds, the entire balance would be taxable upon conversion. However, without knowing if any contributions were post-tax, it’s hard to confirm the taxable amount precisely.
Here’s what you might consider doing:
1. Contact Schwab: They may have records or can at least confirm whether the IRA funds were entirely pre-tax at the time of rollover. Sometimes, financial institutions retain limited information about original contribution types.
2. Try to Contact Former Employers: If your former employers or their plan administrators still have records, they might be able to confirm if the contributions were pre-tax or post-tax.
3. Estimate and Assume All Funds Are Pre-Tax: If all else fails and you can reasonably assume the entire balance is pre-tax, you could proceed with the conversion, acknowledging that you may owe tax on the entire amount.
4. Use Form 8606 for Documentation: When converting to a Roth, the IRS requires that you report the amount converted, and if you believe the funds were all pre-tax, that simplifies the process.
Would any of these approaches work for your situation?
Your CPA’s concern likely stems from needing to determine whether any portion of those 401(k) contributions were post-tax, which would impact the taxes owed on a Roth conversion. Generally, if the rollover IRA contains only pre-tax funds, the entire balance would be taxable upon conversion. However, without knowing if any contributions were post-tax, it’s hard to confirm the taxable amount precisely.
Here’s what you might consider doing:
1. Contact Schwab: They may have records or can at least confirm whether the IRA funds were entirely pre-tax at the time of rollover. Sometimes, financial institutions retain limited information about original contribution types.
2. Try to Contact Former Employers: If your former employers or their plan administrators still have records, they might be able to confirm if the contributions were pre-tax or post-tax.
3. Estimate and Assume All Funds Are Pre-Tax: If all else fails and you can reasonably assume the entire balance is pre-tax, you could proceed with the conversion, acknowledging that you may owe tax on the entire amount.
4. Use Form 8606 for Documentation: When converting to a Roth, the IRS requires that you report the amount converted, and if you believe the funds were all pre-tax, that simplifies the process.
Would any of these approaches work for your situation?
Posted on 10/28/24 at 11:08 am to amberjack
If the rollover IRA is pre-tax money, then what you want to do is called a "Roth conversion". A backdoor roth is something different.
You shouldn't need the contributions amounts to do a Roth conversion. The amount you convert is treated as income and you'll pay taxes on that. So it's generally better to do this when you have lower income or no income like early retirement before 59.5.
https://www.investopedia.com/roth-ira-conversion-rules-4770480
You shouldn't need the contributions amounts to do a Roth conversion. The amount you convert is treated as income and you'll pay taxes on that. So it's generally better to do this when you have lower income or no income like early retirement before 59.5.
https://www.investopedia.com/roth-ira-conversion-rules-4770480
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