Should I do backdoor roth IRA?

Submitted by seriousgainz t3_z84k16 in personalfinance

I will be making between 300k - 400k. It depends on bonus and firms performance. Obviously this is too much to directly contribute to Roth IRA.

Hypothetically lets say I have 100k after fully funding my 401k.

Is sticking 6k a year in a traditional roth IRA and converting to Roth and 94k in a taxable account vs putting all 100k into a taxable account going to make a big difference come retirement?

I am also married so I guess my wife could do another 6k.

Reason I am hesistant is I dont want to screw up and forget to file the correct forms for taxes. Also, i thought there was some legislation that would prevent this in the future.

Thanks for any input.

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Werewolfdad t1_iy9qfns wrote

>Is sticking 6k a year in a traditional roth IRA and converting to Roth and 94k in a taxable account vs putting all 100k into a taxable account going to make a big difference come retirement?

For the minimal amount of effort involved? Absolutely.

>Reason I am hesistant is I dont want to screw up and forget to file the correct forms for taxes

Its pretty much idiot proof. If you can earn $300-400k/year, you can successfully file your taxes

> Also, i thought there was some legislation that would prevent this in the future.

That's a problem for the future

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Ruminant t1_iy9quff wrote

  1. It's easy to do, especially if you file taxes with tax software.
  2. Even if the law is changed to prevent the backdoor Roth technique in the future, all that will do is prevent you from making additional indirect Roth IRA contributions in the future. The income limits for contributions do not affect money which was legally put into a Roth IRA in previous years.
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MyNameIsVigil t1_iy9s264 wrote

There’s not much to it to screw up. Here’s all I do:

  1. Deposit $6k post-tax into my Traditional IRA. This account is just cash because it’s only a transfer mechanism.

  2. Transfer the $6k from the Traditional IRA account to my Roth IRA account. Both at Schwab, it’s just a simple transfer. The Roth account is soft-managed, so the money gets automatically allocated into my elected investments.

  3. If my tax software asks if I made any IRA contributions, I say $6k post-tax.

That’s all there is to it.

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BouncyEgg t1_iy9pk2f wrote

On an income of 300-400K, sure 6k (or 12k) will be small potatoes.

But gee... when you're retired, you (or your children when inherited) will be so happy to benefit from having a tax-free bucket.

How do you file your tax returns currently?

Once you've done it once, filing the proper forms is a trivial task thanks to tax software.

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PSEOL t1_iy9qglx wrote

It’s all relative. At that income, the tax advantage of the 401k is massive.

Truth is at that income level, you can have your cake and eat it too, maxing both 401k and Roth IRA (via backdoor)

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pancak3d t1_iy9pwuf wrote

Will 6k / year in a Roth make a big difference for you? Probably not

But why voluntarily taxes on decades of gains? If you want to pass some gains onto the government, to save yourself from clicking a few buttons in your tax software, I suppose that's up to you.

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mistermephist0 t1_iy9r9jp wrote

I think you make enough to hire an accountant to give you proper financial advice.

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seriousgainz OP t1_iy9vjla wrote

I asked my accountant about it and he said I needed a financial advisor. I just want to make sure I do the backdoor conversion correctly. If its complex enough that I need to hire a financial advisor, I began to wonder if its even worth it.

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Leading-Hat7789 t1_iy9st8j wrote

Short Answer…yes. It’s not just the money. Depending on your state, a Roth has more protections. Also, these accounts don’t count in situations where your wealth is important - like the FAFSA. However, find a broker that does these well.

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