Back Door IRA
I might be losing it 🙂
I thought I read somewhere that when one opens a Traditional IRA (non-deductible) with the intent of doing a Roth conversion (back door), that their ability to do that with no tax consequences it based on whether they have current traditional IRA plans in place?
Did I dream this and just make it up in my mind, OR is it as easy as you don’t qualify for the Roth, you open the backdoor, convert it and live happily ever after? I am thinking it is not that easy, but maybe I am odd one.
Thanks for comments.
Permalink Submitted by Jose Morales on Thu, 2017-06-15 20:13
Let’s take a step back and speak to the tax consequences of a conversion, which is really the issue at hand. When you convert your Traditional IRA to a Roth IRA the portion of the conversion that is taxable is based on the overall percentage of your Traditional IRA holdings which represent non-deductible contributions, not just the non-deductible contributions in any one account that you happen to convert. So if you have ten Traditional IRAs and none of them have non-deductible contributions, and you open a new Traditional IRA and make a non-deductible contribution then immediately convert it to a Roth, your conversion will not be tax free due to the overall proportion of nondeductible contributions in all of the Traditional IRAs combined.