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Last year I contributed to a non-deductible traditional IRA and converted it to roth. I would like to do the same again this year, but I want to make sure I do it correctly. Do I follow the exact steps I did last year.... deposit the money into the traditional account, convert, then pick my funds?
Also, I have heard rumblings about closing the loophole.. what will/could happen to my roth account?
Perhaps I'm misunderstanding the question(?) - Converting traditional IRA funds to a Roth incurs a taxable event, plus a 10-percent penalty if the conversion occurs prior to age 59-1/2. Doesn't a Roth also involves a 5-year hold period? --- I fail to see the loophole?
If you are looking at an annual conversion, why not simply invest post tax dollars in a Roth account ... or, if you intend to withdraw the funds annually, why bother with either an IRA or Roth?
Perhaps I'm misunderstanding the question(?) - Converting traditional IRA funds to a Roth incurs a taxable event, plus a 10-percent penalty if the conversion occurs prior to age 59-1/2. Doesn't a Roth also involves a 5-year hold period? --- I fail to see the loophole?
If you are looking at an annual conversion, why not simply invest post tax dollars in a Roth account ... or, if you intend to withdraw the funds annually, why bother with either an IRA or Roth?
You are thinking of it incorrectly. If you have no pretax Ira monies and make a nondeductible Ira contribution the conversion has no tax issues
Also a reason why some can't make Roth contributions directly is that they make too much money
I believe jghorton misunderstands. Flyingsaucermom has done a backdoor Roth IRA conversion (non-deductible IRA into a Roth tax-free IRA). Had the original IRA been a traditional deductible account or invested and had gains from that account, Flyingsaucermom would have to pay back the tax deduction and any taxes on the gains up until the conversion date. I assume there were no gains before the conversion, no taxes and no deduction has to be paid.
I will be doing the same thing this year. As a Capitalist, Roths make a whole lot of sense. However, the socio-capitalist in me really loathes the backdoor Roth IRA. The cynic in me believes both the backdoor Roth IRA and the HSA conversion to an IRA were created by wealthy Congressmen who want to keep themselves and their friends wealthy. It completely hoses the middle and lower class who do not benefit from this. If you ask me, they should just raise the Roth qualification and increase the earned income tax credit for low income folks who want to invest…though our tax law is ridiculously complicated and convoluted.
Perhaps I'm misunderstanding the question(?) - Converting traditional IRA funds to a Roth incurs a taxable event, plus a 10-percent penalty if the conversion occurs prior to age 59-1/2. Doesn't a Roth also involves a 5-year hold period? --- I fail to see the loophole?
If you are looking at an annual conversion, why not simply invest post tax dollars in a Roth account ... or, if you intend to withdraw the funds annually, why bother with either an IRA or Roth?
Our income exceeds the limit for a direct roth contribution so we're using the "back door". We don't intend to use this money for decades, if at all.
It's something that I've heard the Obama administration talking about restricting. I can understand why of course, but it's available to me today and I plan to use it.
Last year I contributed to a non-deductible traditional IRA and converted it to roth. I would like to do the same again this year, but I want to make sure I do it correctly. Do I follow the exact steps I did last year.... deposit the money into the traditional account, convert, then pick my funds?
Also, I have heard rumblings about closing the loophole.. what will/could happen to my roth account?
i assume you have no other already existing deductible ira's ? i f you do it isn't this simple
i assume you have no other already existing deductible ira's ? i f you do it isn't this simple
Yes, I guess you could say we were, in a way, fortunate, to have been complete ignorant novices about IRAs before I had read about a backdoor roth. We had never contributed to one before opening the accounts at Vanguard. So my husband and I each have two accounts.. the traditional that sits empty (which I assume is the account we repeatedly use to fill and empty.... as long as it's permitted) and the roth.
Last year I contributed to a non-deductible traditional IRA and converted it to roth. I would like to do the same again this year, but I want to make sure I do it correctly. Do I follow the exact steps I did last year.... deposit the money into the traditional account, convert, then pick my funds?
Also, I have heard rumblings about closing the loophole.. what will/could happen to my roth account?
If they close the loophole, nothing would happen to your Roth account. You would simply be unable to convert additional monies, unless your income changed.
I believe jghorton misunderstands. Flyingsaucermom has done a backdoor Roth IRA conversion (non-deductible IRA into a Roth tax-free IRA). Had the original IRA been a traditional deductible account or invested and had gains from that account, Flyingsaucermom would have to pay back the tax deduction and any taxes on the gains up until the conversion date. I assume there were no gains before the conversion, no taxes and no deduction has to be paid.
I will be doing the same thing this year. As a Capitalist, Roths make a whole lot of sense. However, the socio-capitalist in me really loathes the backdoor Roth IRA. The cynic in me believes both the backdoor Roth IRA and the HSA conversion to an IRA were created by wealthy Congressmen who want to keep themselves and their friends wealthy. It completely hoses the middle and lower class who do not benefit from this. If you ask me, they should just raise the Roth qualification and increase the earned income tax credit for low income folks who want to invest…though our tax law is ridiculously complicated and convoluted.
It was created in 2010 in order to generate tax revenue.
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