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Puffoluffagus
LSU Fan
Savannah, GA
Member since Feb 2009
4290 posts

Rollover IRA questions
My wife had a 401k with a previously employer. After she left that position, we rolled over the assets to a rollover IRA with vanguard. I'm now trying to make IRA contributions for the year and trying to figure out the best option.

Should I contribute directly to the rollover IRA or is it better to open up a separate traditional IRA account, contribute and the backdoor roth from there?

we are over the annual limits to contribute to a roth directly.

Is there something else I'm missing or something else I should consider?

ETA:dammit, didn't realize I posted in the wrong forum, I'll RA it.
This post was edited on 11/6 at 12:58 pm


ProjectP2294
Penn Fan
South St. Louis city
Member since May 2007
49187 posts

re: Rollover IRA questions
quote:

Is there something else I'm missing or something else I should consider?


The tax consequences. Setting up a separate IRA won't really help. There will still be pro rata taxation on the conversion. The IRS will look at both traditional IRAs as one IRA and the ration of after-tax (non-deductible) money to pre-tax (what was rolled over) will carry through the conversion. So some of it will be taxable and some of it won't be.

Once you mix the two types of money in an IRA, you can't get the Kool Aid out of the water. (In general)


asullivan12
LSU Fan
Many, LA
Member since Nov 2015
904 posts

re: Rollover IRA questions
I'd get a CPA and Financial Advisor if i were you. These internet experts are going to give you some shitty advice.


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ridlejs
Auburn Fan
Member since Aug 2011
189 posts

re: Rollover IRA questions
Without going to far into the weeds, does your wife have a current 401(k)? If so, you should just rollover those IRA assets into the 401(k) and THEN do the non-deductible Traditional IRA contribution followed by a Roth conversion (Backdoor Roth).


Puffoluffagus
LSU Fan
Savannah, GA
Member since Feb 2009
4290 posts

re: Rollover IRA questions
quote:

The tax consequences. Setting up a separate IRA won't really help. There will still be pro rata taxation on the conversion. The IRS will look at both traditional IRAs as one IRA and the ration of after-tax (non-deductible) money to pre-tax (what was rolled over) will carry through the conversion. So some of it will be taxable and some of it won't be.



Fair enough. Might need to talk to a CPA earlier than I was planning to sort this out.

This will likely be lowest income year we have for quite some time.


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Puffoluffagus
LSU Fan
Savannah, GA
Member since Feb 2009
4290 posts

re: Rollover IRA questions
quote:


Rollover IRA questions
Without going to far into the weeds, does your wife have a current 401(k)? If so, you should just rollover those IRA assets into the 401(k) and THEN do the non-deductible Traditional IRA contribution followed by a Roth conversion (Backdoor Roth).




No current 401k. If she ends up going back to work, it'll likely be PRN/part-time, so while she may have a 401k option, there will likely be no employer match and limited investment options.

The amount of the rollover is fairly small in relative terms.


ridlejs
Auburn Fan
Member since Aug 2011
189 posts

re: Rollover IRA questions
Got it. If your wife has any self-employed income she could open an i401(k). You can usually open these at the big custodians like Schwab and TD. You could then roll the IRA assets into that to free up your IRA accounts for backdoor contributions.

You could also just convert the whole thing to a Roth if you're going to be in a low-tax year. Those opportunities don't come along often and are a nice time to do Roth conversions as long as your cashflow allows you to pay the taxes.


Puffoluffagus
LSU Fan
Savannah, GA
Member since Feb 2009
4290 posts

re: Rollover IRA questions
quote:

You could also just convert the whole thing to a Roth if you're going to be in a low-tax year.


Yeah, this might be the option that we end up going given the lowish amount of the 401k rollover, and our lowish income year. But yeah I might just hold off on her IRA contributions until after I talk to a CPA.


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