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High Earners: Traditional IRA
Posted on 1/19/18 at 5:26 pm
Posted on 1/19/18 at 5:26 pm
Dumb question that I can't seem to find an answer to..
For those exceeding the income limit to claim a deduction for traditional IRA contributions, would you be taxed again on this money when it is rolled over into a Roth?
ETA: I currently have money sitting in a Traditional IRA. So a backdoor Roth would not make sense. Since my traditional IRA contributions are not tax deductible, and will be withdrawn at my income level down the road, why would I not just put my money in a regular taxable stock account to take advantage of long term capital gains vs income tax?
For those exceeding the income limit to claim a deduction for traditional IRA contributions, would you be taxed again on this money when it is rolled over into a Roth?
ETA: I currently have money sitting in a Traditional IRA. So a backdoor Roth would not make sense. Since my traditional IRA contributions are not tax deductible, and will be withdrawn at my income level down the road, why would I not just put my money in a regular taxable stock account to take advantage of long term capital gains vs income tax?
This post was edited on 1/19/18 at 5:37 pm
2
Posted on 1/19/18 at 6:10 pm to LSUTOM07
You aren’t taxed when you do a back door roth from a non deductible IRA contribution. Unless you already have money in a traditional Ira your took deduction for.
Money has to sit in the Roth for 5 years before you can touch gains tax free, just keep that in mind if you are close to retirement age.
Also, since you already have IRAs that I’m assuming you took deduction on, youd have to prorate the amount you wanted to convert across your whole balance, so you’d be paying taxes on some of your conversion from the traditional to Roth.
Very few people do non deductible IRA contributions- your CPA would have to calculate the basis (non deductible portion) in your IRA and keep that up for you. And it will be a paperwork nightmare. Some people just like to defer taxes on their growth. Only ulra tax this makes sense only for ultra tax sensitive investors.
Money has to sit in the Roth for 5 years before you can touch gains tax free, just keep that in mind if you are close to retirement age.
Also, since you already have IRAs that I’m assuming you took deduction on, youd have to prorate the amount you wanted to convert across your whole balance, so you’d be paying taxes on some of your conversion from the traditional to Roth.
Very few people do non deductible IRA contributions- your CPA would have to calculate the basis (non deductible portion) in your IRA and keep that up for you. And it will be a paperwork nightmare. Some people just like to defer taxes on their growth. Only ulra tax this makes sense only for ultra tax sensitive investors.
Posted on 1/19/18 at 6:43 pm to AugustaTiger
Thanks.
The traditional IRA currently sitting is from a previously rolled over 401k. Im 30+ years from retirement, so no worries there.
The only traditional IRA contributions I have ever made was for 2017. Since I do not receive a deduction on this money, is there a way I can withdraw my contributions?
The traditional IRA currently sitting is from a previously rolled over 401k. Im 30+ years from retirement, so no worries there.
The only traditional IRA contributions I have ever made was for 2017. Since I do not receive a deduction on this money, is there a way I can withdraw my contributions?
Posted on 1/19/18 at 6:56 pm to LSUTOM07
You should be able to do an excess removal of your funds since you weren’t eligible to make the deductible contribution.
Posted on 1/19/18 at 10:23 pm to LSUTOM07
If you make a non-deductible contribution to an IRA, the initial contribution should not be taxed when you start withdrawing (as you have already paid taxes on that).
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