The Definitive Guide to the “Back-Door Roth” Question

Submitted by Richard Rea on Sat, 2015-08-15 04:51

The Definitive Guide to the “Back-Door Roth”

Really liked this article, wish I would have had it a few years ago.

My daughter and her DINK husband have had to do “back door” Roth IRAs the last few years due to their income being well above $200,000.

Both have recently changed jobs looking for more time off and are looking at an projected income of ~$166,000 for 2016. If I read the first table in the above article correctly they can now do a front door Roth IRA contribution. Correct?

Also can you do a back door Roth IRA, we always contribute the first week of January of each year, just in case your income exceeds the limit. I mean do the extra paperwork just in case you are in danger of exceeding the limits?

SeattleSun

DINKS = dual income no kids



Submitted by David Mertz on Sat, 2015-08-15 13:57

  • We still need two more months of CPI data to be sure, but it’s looking like the MFJ Roth IRA contribution phase-out range for 2016 will be a MAGI of $184,000 to $194,000.  With a 2016 MAGI of ~$166,000, a full Roth IRA contribution would be permitted.
  • As long as there is sufficient eligible compensation to support the contribution and the individual will not be 70½ or older by the end of the year, a traditional IRA contribution can be made by that individual for that year.  There are no restrictions on converting amounts in a traditional IRA to a Roth IRA.  Even if an individual makes a Roth IRA contribution and later finds as the end of the year is approaching that some or all of the Roth IRA contribution might be excess due to a higher than anticipated MAGI, the excess Roth IRA contribution could be recharacterized to a traditional IRA and subsequently converted to Roth.  However, if there are earnings that must be transferred with the recharacterization, those earnings would be taxable in the subsequent conversion.  If there is any reasonable chance that any portion of a Roth IRA contribution would end up being excess, it might be simplest to just use the back door on the entire contribution to begin with.

Add new comment

Log in or register to post comments