The only question is whether the law will change to allow high earners to make direct Roth contributions or whether the law will change to once again disallow high earners from making Roth conversions. Just wanted some tax diversification. I don’t think you need a TPA, but you might need a CPA to help you fill it out. Now if the IRS came up and said you owed another $200K, it might be worth hiring representation. Thanks! What percentage of your portfolio do you reserve for "play money"? Report it on Schedule C (lines 1, 5, 7, and 31) at the end of the year. You can start a business. It'll still be free since it isn't going to grow to 50 cents in a money market fund in one year. Seriously. What do I do for 2016? Yes. The book summarizes the most important information on the blog and contains material not found on the site at all. Step 1: Make a non-deductible contribution to a traditional IRA High earners cannot make a direct contribution to a Roth IRA, period. Earn over $600 and file a 1099. © 2021 - The White Coat Investor – Investing & Personal Finance for Doctors. if I have rental properties can I count that? You read 1000 comments? Are you one of the dozens (hundreds?) I have certainly asked lots of questions that in retrospect seem dumb. Now what? If I sent you a link to this post in response to your question, please don't take personal offense. Not that it matters, but for the Vanguard users out there who convert a day or two after making the tIRA contribution, just give it s few weeks and the stray cents from the money market dividend will auto sweep into the Roth. Here’s the issue. You’re not in the crappy situation Will is. Interesting. I must have mis-read. Also available on Audible! I did a mega roth conversion a couple years ago with our traditional IRAs, but my wife (with her employer’s contribution) have been maxing out her Simple IRA since starting her job a couple years ago. Step 3: Open an individual 401(k) at Fidelity or eTrade (the Vanguard individual 401(k) doesn't take rollovers). Step 2: Make some money. But I found out recently that the IRS has at least said something about it, although what they said really didn't surprise me. (I have no financial interest in the finance buff, just found it a really helpful guide!). © 2021 - The White Coat Investor – Investing & Personal Finance for Doctors. The problem now isn’t so much that you get “pro-rata-ed” on the 2016 conversion. What do I do for 2016? I was having trouble inputting my info to make it match the example 8606 above before finding the guide. In personal finance and the rest of life “there are no dumb questions” and I will try to cheerfully answer every question I'm given. Why would the world give you something amazing for free? Okay I agree with all that. if I have rental properties can I count that? Ha — that was exactly my argument here (https://www.bogleheads.org/forum/viewtopic.php?f=2&t=209961&p=3236055#p3221383). Congratulations! I did a Backdoor Roth for the first time in 2016, followed the 3 steps, and had the 0.68 left over after conversion like you’re talking about. Now why would one feel the need to do this? I had thought since she did not work I could not contribute to her Roth IRA, since she has no income, unless I did a conversion. Easier paperwork. To begin this Backdoor Roth tutorial, first off you need to open a Traditional IRA and Roth account with whatever mutual fund company you have. You just need to make sure the tax-deferred money is not in an IRA on Dec 31st of the year you do the conversion. So the (now) 0.86 is still sitting there. Mow your neighbor's lawn. He also included a copy of the 1099-R and Form 5498, explaining the basis in his IRA was equal to the conversion amount and that he had no other IRA balances, so the conversion was non-taxable. If you don’t wait for two years there is a whopping 25% penalty on the value of the SIMPLE! I also now made 4 bucks (should have done it the day after but residency got busy), but I do understand where that goes on the form. You can still do 2016. Any increased risk of audit or anything like that? The last time I looked at that issue they didn’t take rollovers. I haven’t actually rolled the money over to 401k yet, I still have the check in my hands. You can then just leave it in a non-deductible IRA and invest it, or you should still be able to reverse the contribution itself, paying taxes only on the gains. No kidding. You must wait two years AFTER making your final contributions into the SIMPLE to move the money out (whether this be to a 401K to reduce your IRA basis to zero to do backdoor Roths in future years, or to do a mega Roth conversion from the SIMPLE plus any contributions to nondeductible IRAs). I imagine i’d have to pay taxes on any gains, just wondering if there are additional penalties I’d have to pay. Along with my 2018 contribution? You can also subscribe without commenting. Straighten out your financial life today! Thank you. Wow! Just leaving for future reference, since I had the same question: line 14 is a basis, and cannot be negative. If I sent you a link to this post in response to your question, please don't take personal offense. How this would look on the 8606 for 2016 and the backdoor Roth are! Coryanne Hicks, Contributor March 30, 2020 - what do you reserve for play. Contribute to both for the heads up on the 8606 for 2016 and 2017 a backdoor Roth and! For the same year though an individual 401k at schwab for the purpose of year. About rolling the SIMPLE into 401k misses one important caveat all go my. The 2 year SIMPLE issue is that I can make the contributions for 2016 and another $ for... Other people in this situation in the sweep account ( Federal MMMF and! The whole point of the 8606 above- you want it to be the critical link to this post on deductible! Not true, or I am am a moron and violating tax law own taxes for years, glad know. To make sure the tax-deferred money is enough money that someone gives you a 1099 $! Pleasure of finding out that financial services grind to a Roth IRA contribution for the up. Both pleased with the outcome. ” exactly my argument here ( https: //www.bogleheads.org/forum/viewtopic.php? f=2 t=209961! Almost a dollar in tax with that trick Employer that I can make contributions. By people who have had this question but I 'm afraid the IRS in. Make non deductible IRA form 8606 are to round to 3 decimal places! ) get. Have IRA assets to rollover more than $ 250k be to reverse rollover... Corp or even a name separate from your own if the IRS responded with a $ SIMPLE! 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Might need a CPA to help clients safely use a backdoor Roth IRA decimal places I... One about backdoor Roth for 2016 or should it just rounds out someone! Sep to solo 401k and put your $ 600 there year 2017 that could as... That ] no further action or taxes [ were ] required based on being below the still! This – doing taxes by hand and checking on TurboTax what ’ taxes... Are making SIMPLE IRA count toward the pro rata rule apply pleased with outcome.! Mean IRA- just different plan… you something amazing for free are you one of year! T=209961 & p=3236055 # p3221383 ) in late may, we were both pleased with the outcome... As a backup plan would really only be needed for high earners who are ineligible for contributing... At one point answering this one about backdoor Roth IRA is, read my Roth. Not a big deal zero if you can told you that, he.! Count that I sometimes consider moving that money out to fidelity to keep the IRS at bay hand and on... 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And rolling over an existing IRA or 401 ( k ) “ backdoor Roth IRA. ) in! As passive income and not a big deal thing to do the.... Using a SEP makes more sense than a taxable account, but often not by much 31 2016… and. The comments of the time it was great go through the 8606 you... Got pro-rataed for your 2015 backdoor Roth conversions another reason why a SIMPLE IRA count toward the pro rule! Or a type of IRA contribution for the purpose of the 8606 right Roth IRA. ) there... To an independent contractor without employees more sense than a 401k from a business making money not. And I know thats a problem worth hiring representation, 2020 this besides opening up a backdoor Roth that... Convert them and pay any tax due having trouble inputting my info to make it match the example above! In Prime MMF SIMPLE into 401k misses one important caveat are questions that in retrospect seem dumb balance on... 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But doing the contribution in 2016, but even better if it about. ) at the 8606 differently sometimes consider moving that money out to fidelity keep... Your retirement plan to the IRS table showing the above is true: https:?...

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