- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
ROTH Income Limits, Recharacterizing, Back Door
Posted on 4/20/15 at 12:53 pm
Posted on 4/20/15 at 12:53 pm
Hey guys,
So, I'm trying to decide what to do in my current situation. I'll note what I already know (or think I know)
*I know the income phase out from 181 - 191,000 a year for married households.
*I know we could do backdoor ROTH contributions by contributing to a Traditional in a lump sum, then converting to a ROTH.
*I also know, that if you are above the income limits, you can recharacterize ROTH contributions to traditional, or be subject to tax if you don't.
I will receive a series of raises I negotiated this year, and my wife and I will be somewhere in this range or just below from 181 to 191k, and pretty much assuredly over in 2016 once I get my full year of new wages and she gets her usual salary, raises and bonuses.
So, backdoor ROTHs are pretty easy when you go straight to a Traditional and convert to ROTH, but what pitfalls may exist in a situation where I contribute to a ROTH, then have to recharacterize, and then try to convert back to the ROTH to complete the backdoor? Can I do that all at the same time without incurring some problem?
I'm fine if there is no way to avoid some limited taxes on the conversion (ie I know the longer you wait to convert a Traditional to ROTH the more likely you will incur taxes, but I don't know when this clock starts ticking in this recharacterization scenario, time of contribution or time of characterization) or if I have to let the recharacterization ride one taxable year and then do a simple backdoor ROTH in 2016 which includes the money from 2015.
Last resort if required by unknown pitfall I could just keep the money aside until I'm sure one way or another so I can complete the backdoor ROTH in a less confusing manner.
Thanks, hope that makes sense.
So, I'm trying to decide what to do in my current situation. I'll note what I already know (or think I know)
*I know the income phase out from 181 - 191,000 a year for married households.
*I know we could do backdoor ROTH contributions by contributing to a Traditional in a lump sum, then converting to a ROTH.
*I also know, that if you are above the income limits, you can recharacterize ROTH contributions to traditional, or be subject to tax if you don't.
I will receive a series of raises I negotiated this year, and my wife and I will be somewhere in this range or just below from 181 to 191k, and pretty much assuredly over in 2016 once I get my full year of new wages and she gets her usual salary, raises and bonuses.
So, backdoor ROTHs are pretty easy when you go straight to a Traditional and convert to ROTH, but what pitfalls may exist in a situation where I contribute to a ROTH, then have to recharacterize, and then try to convert back to the ROTH to complete the backdoor? Can I do that all at the same time without incurring some problem?
I'm fine if there is no way to avoid some limited taxes on the conversion (ie I know the longer you wait to convert a Traditional to ROTH the more likely you will incur taxes, but I don't know when this clock starts ticking in this recharacterization scenario, time of contribution or time of characterization) or if I have to let the recharacterization ride one taxable year and then do a simple backdoor ROTH in 2016 which includes the money from 2015.
Last resort if required by unknown pitfall I could just keep the money aside until I'm sure one way or another so I can complete the backdoor ROTH in a less confusing manner.
Thanks, hope that makes sense.
This post was edited on 4/20/15 at 1:00 pm
Posted on 4/20/15 at 2:40 pm to Teddy Ruxpin
quote:
Last resort if required by unknown pitfall I could just keep the money aside until I'm sure one way or another so I can complete the backdoor ROTH in a less confusing manner.
I've experienced firsthand how difficult it is to estimate AGI when around the phaseout, especially when bonus(es) are part of the equation. Your last resort is now my preferred approach after being bitten twice. It isn't that difficult to recharacterize, but it is an exercise I would rather not have to put myself through - especially the tax part of it. This year, I waited until I prepared our taxes and squeezed out every dollar of Roth eligibility.
Posted on 4/20/15 at 4:05 pm to Teddy Ruxpin
quote:
I contribute to a ROTH, then have to recharacterize, and then try to convert back to the ROTH to complete the backdoor
I did this in 2013 because I accidentally contributed to my Roth IRA (I never was good at double checking my work). It's a headache, but definitely not impossible.
Posted on 4/20/15 at 4:11 pm to Teddy Ruxpin
I wish I had your problems...
Posted on 4/20/15 at 4:13 pm to Teddy Ruxpin
quote:
Last resort if required by unknown pitfall I could just keep the money aside until I'm sure one way or another so I can complete the backdoor ROTH in a less confusing manner.
This is my method now that I had to go through
quote:
contribute to a ROTH, then have to recharacterize, and then try to convert back to the ROTH to complete the backdoor
Not worth the headache...
Posted on 4/20/15 at 10:08 pm to Teddy Ruxpin
Does your 401k allow after tax contributions? If so, does it allow for inservice distributions of after-tax dollars? If so, contribute after tax dollars into 401k, then do inservice distribution into Roth IRA. Any gains for deferral until rollover have to go into a traditional IRA.
No income limit issues at all. Can also put away a lot more $ this way.
No income limit issues at all. Can also put away a lot more $ this way.
Posted on 4/21/15 at 8:51 am to Teddy Ruxpin
This shite pisses me off everytime i go sit down with my financial guy. I am in the same situation and bonuses screw me up one way or another everytime.
I really dont understand why the limit is so low. its meant to keep millionaires from abusing the roth, but you arent a millionaire making less than 200 a year.
Btw i just backdoor it now after getting popped two years agao.
I really dont understand why the limit is so low. its meant to keep millionaires from abusing the roth, but you arent a millionaire making less than 200 a year.
Btw i just backdoor it now after getting popped two years agao.
Popular
Back to top
Follow TigerDroppings for LSU Football News