Submitted by awful-human-being t3_zzn87e in personalfinance

Hi everyone. I now exceed the income limit to contribute to a Roth IRA. I have an existing Roth IRA with some invested funds in it (about two years of maximal contributions). I’m wondering if I could open up a traditional IRA and then rollover funds to my Roth IRA to avoid these income limits. I heard that the IRS treats IRA money as one bucket without discriminating pre and post tax money so I’m wondering if it’s even advantageous for me to roll money over from a traditional IRA, or if I’d be hit with more taxes?

2

Comments

You must log in or register to comment.

BouncyEgg t1_j2cldhf wrote

You have a pre-existing Traditional IRA?

Or do you have a pre-existing Roth IRA?

It's the presence of a pre-existing Traditional IRA (sourced from deductible contributions) that presents an issue. Having a pre-existing Roth IRA doesn't matter.

3

awful-human-being OP t1_j2cqbaj wrote

Ah, I only have a pre-existing Roth IRA. I haven’t opened a traditional IRA yet. I’m glad this case doesn’t present issues. Thanks for the response.

1

maedocc t1_j2cl7tk wrote

Do you have any money already in an existing traditional IRA?

If yes, you'll run afoul of the pro-rata rule, which is what I think you're worried about.

If all your IRA funds are in a Roth IRA, you're fine.

2

awful-human-being OP t1_j2cqfmr wrote

Yeah, no money in an existing traditional IRA. Great! Thanks for the response!

1

DeluxeXL t1_j2cltvu wrote

You can have pre-existing accounts. As long as you have no pretax balance in any IRA in your name (except inherited IRAs), you can do backdoor Roth cleanly. You can re-use existing accounts as many times as you want.

1

Green0Photon t1_j2cqwou wrote

With no traditional IRA already existing, you have no worries. Though I'd go and read up on it.

Pro rata rule isn't about double taxing. It's unexpectedly taxing you, because it causes you to accidentally leave some normal post tax money in the traditional IRA and bring some pre tax money with you into the Roth IRA, causing you to have extra unexpected "income".

It only affects post tax traditional IRA contributions, which only happens when you do a backdoor Roth IRA -- your contributions to a traditional IRA become post tax aka nondeductible at the same limit as the Roth contribution income limit . You don't have to worry about it with a Roth ladder or with mega backdoor Roth.

If you preemptively do a backdoor Roth IRA, when you're under that line, all the money in there is pre tax and it doesn't make a difference.

The guideline is mostly that you just need to have an empty traditional IRA by the end of the year if you did a backdoor Roth. The easiest way to do so is typically to do a reverse rollover into a 401k, which will only pull out the pre tax dollars, allowing you to retroactively select the post tax dollars for the conversion if you end up doing the backdoor Roth first, then the reverse rollover.

But that's all extra detail that it sounds like you don't need to know.

Just try and keep the contribution and conversion in the same year for simplicity.

1