Portfolio Question

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HomeStretch
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Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Fri Sep 30, 2022 12:49 pm I have not been doing anything with her traditional IRA. No conversions at all.

I have been putting 6k yearly in completely different traditional (non deductible bc of income) IRA and then converting to Roth IRA. …
Did you file Form 8606 with your Form 1040 for each of you in tax years where a non-deductible TIRA contribution was made or converted?
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roccodean
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Re: Portfolio Question

Post by roccodean »

I confirmed w my tax person.

Should I move her traditional IRA to her 401k ?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 7:00 am I confirmed w my tax person.
What does this mean?
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roccodean
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Re: Portfolio Question

Post by roccodean »

My accountant is looking into it to ensure we did it correct
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roccodean
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Re: Portfolio Question

Post by roccodean »

I hadn't completely understood the pro rata rule I guess. Now that I do and realize that the 6k that she is doing in her backdoor roth, about 90% of that is being taxed, should I try to move her traditional IRA to her 403b or just not do a backdoor roth for her and instead do a traditional nondeductible IRA and get taxed later when I will be at lower tax bracket?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

If it was done correctly, you cannot move the IRA into Her 403b because the IRA contains "basis" (already taxed money). This is the result of the pro-rating required by the backdoor Roth process in the presence of an IRA. You could, however, roll the part that is not basis into the 403b and then convert the basis to Roth.

If it was not done correctly, the solution is to amend taxes for all the years it was done incorrectly, but you cannot amend more than three years back. This will also put "basis" in the tIRA and basis cannot be rolled into the 403b. But again, the part that is not basis could be rolled into the 403b and the basis converted to Roth.

If the incorrect filing goes back more than 3 tax years, I don't know how to fix it properly.

The bottom line is that nobody here can tell you it is OK to roll the IRA into Her403b because it appears that would not be allowed.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 7:24 am I hadn't completely understood the pro rata rule I guess. Now that I do and realize that the 6k that she is doing in her backdoor roth, about 90% of that is being taxed...
Do you mean it has been getting taxed or that it should have been getting taxed?

...should I try to move her traditional IRA to her 403b or just not do a backdoor roth for her and instead do a traditional nondeductible IRA and get taxed later when I will be at lower tax bracket?
Don't know yet. In order to answer this question, you will have to tell us exactly what has happened. We have to know what the Form 8606 looks like for each year this has been done.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 7:27 am If it was done correctly, you cannot move the IRA into Her 403b because the IRA contains "basis" (already taxed money). This is the result of the pro-rating required by the backdoor Roth process in the presence of an IRA. You could, however, roll the part that is not basis into the 403b and then convert the basis to Roth.

If it was not done correctly, the solution is to amend taxes for all the years it was done incorrectly, but you cannot amend more than three years back. This will also put "basis" in the tIRA and basis cannot be rolled into the 403b. But again, the part that is not basis could be rolled into the 403b and the basis converted to Roth.

If the incorrect filing goes back more than 3 tax years, I don't know how to fix it properly.

The bottom line is that nobody here can tell you it is OK to roll the IRA into Her403b because it appears that would not be allowed.
Her company got purchased so we were forced to move her 403b to an IRA, I moved this to Vanguard. Let's call this "Traditional IRA 1 " . From that point, I have never put money in (or out) to Traditional IRA 1.

I have been putting money into a completely different Vanguard traditional IRA, let's call this "Traditional IRA 2". I then would use Traditional IRA 2 for my backdoor roth process. I did this bc it was easier to see the exact interest earned on this.

Does this matter?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Yes. That matters. Both of those IRAs are considered one IRA for the purposes of Roth conversion (the second step of the "backdoor" process).
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

When you were doing the backdoor, that "one IRA" contained $88k in pre-tax money and $6k in non-deductible contributions (after tax money). So it was about 94% pre-tax and 6% after- tax.

Every Roth conversion from that should be about 94% taxable and 6% non-taxable.

(numbers are approximate)
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 7:39 am Yes. That matters. Both of those IRAs are considered one IRA for the purposes of Roth conversion (the second step of the "backdoor" process).
I understand that. But, would I still be able to move “Traditional IRA 1” to her current 403b ?

If no (or I shouldn’t), what’s the point of a backdoor Roth if I’m paying taxes on 90% of it at current tax bracket ?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Remember that the "one IRA" contains both pre-tax money and after-tax money. The pre-tax money is allowed to be rolled into the 403b. That after-tax money cannot be rolled into the 403b.

You will have to know how much is pre-tax and how much is after-tax before rolling anything into the 403b.



The backdoor Roth process usually has no point if there is another IRA that it must be pro-rated with. That is why it is not suggested that people use the backdoor Roth method if there is another IRA. It is unfortunate you and your accountant didn't not realize this before doing it.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 7:34 am Her company got purchased so we were forced to move her 403b to an IRA...
What year did this happen?

How many years have you been using the backdoor Roth process?
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 7:54 am Remember that the "one IRA" contains both pre-tax money and after-tax money. The pre-tax money is allowed to be rolled into the 403b. That after-tax money cannot be rolled into the 403b.

You will have to know how much is pre-tax and how much is after-tax before rolling anything into the 403b.



The backdoor Roth process usually has no point if there is another IRA that it must be pro-rated with. That is why it is not suggested that people use the backdoor Roth method if there is another IRA. It is unfortunate you and your accountant didn't not realize this before doing it.
Why does the “one IRa” contain after tax money? It was from pretax 403b.
HomeStretch
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Re: Portfolio Question

Post by HomeStretch »

Based on forum threads, it’s not uncommon for tax preparers to not complete Form 8606 properly or at all. Or for investors to be unaware of the pro-rata rule or to believe if they do a backdoor Roth in a separate TIRA that it is not subject to pro-rated taxes even if they have another TIRA with a 12/31 pretax balance. I’m not saying this is true in your case. But as you are not sure how your tax preparer handled this, consider verifying this yourself.

Just looking at 2021 for now… If your spouse did a backdoor Roth in 2021 (using TIRA #1) and had a 12/31/21 pretax balance in TIRA #1 and/or TIRA #2, then your spouse should have filed a Form 8606 for 2021 showing a portion of her backdoor Roth (the step 2 conversion) as taxable. To verify this, pull out your copy of your 2021 Federal return. Does Form 8606 Part II Line 18 show a $ amount? Is that $ amount included on Form 1040 Line 4b? What is the $ amount?

As retiredjg notes, your spouse won’t know the correct pretax amount eligible for rollover into her employer plan until you know your spouse’s TIRAs’ basis. Your spouse won’t know this unless all years’ Forms 8606 have been properly completed.
Last edited by HomeStretch on Sat Oct 01, 2022 8:10 am, edited 1 time in total.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Let me try an example.

Imagine a bowl with 95 blue pre-tax marbles. And a bowl with 5 yellow after-tax marbles.

When you do a Roth conversion (the second step of the backdoor Roth process), the marbles all get dumped into one bowl. So that one bowl is now 95% blue marbles and 5% yellow marbles.

Whatever you take out must be in the same ratio (pro-rated) as they are in the one big bowl.

Let's take out 20 marbles. 95% must be blue (take out 19 blue marbles) and 5% must be yellow (take out 1 yellow marble).

This leaves 76 blue marbles and 4 yellow marbles in the one big bowl. These yellow marbles (which represent already taxed money left in the IRA) are not allowed to be rolled into the 403b.

Does that make sense?
Last edited by retiredjg on Sat Oct 01, 2022 8:27 am, edited 2 times in total.
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roccodean
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Re: Portfolio Question

Post by roccodean »

Regarding the pro rata, using an example for simple math.
Year 1: If have 94k in traditional IRA, back door roth 6k, pay taxes on 94% of 6k.

Year 2: same scenario…you pay taxes again on 94% of 6k ?

(I’m confused bc it seems like that 94k would be taxed twice then)
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 8:19 am Regarding the pro rata, using an example for simple math.
Year 1: If have 94k in traditional IRA, back door roth 6k, pay taxes on 94% of 6k.

Year 2: same scenario…you pay taxes again on 94% of 6k ?

(I’m confused bc it seems like that 94k would be taxed twice then)
The numbers will not be exactly the same each year. This is because the IRA grows and shrinks with the market. But they will always be mostly pre-tax with just a little after-tax.

No dollars are ever taxed twice. I've edited the marble scenario a little. See that the pre-tax money (blue marbles) is still pre-tax.
Last edited by retiredjg on Sat Oct 01, 2022 8:34 am, edited 2 times in total.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 8:23 am
roccodean wrote: Sat Oct 01, 2022 8:19 am Regarding the pro rata, using an example for simple math.
Year 1: If have 94k in traditional IRA, back door roth 6k, pay taxes on 94% of 6k.

Year 2: same scenario…you pay taxes again on 94% of 6k ?

(I’m confused bc it seems like that 94k would be taxed twice then)
The numbers will not be exactly the same each year. But for each year because the IRA grows and shrinks with the market. But they will always be mostly pre-tax with just a little after-tax.

No dollars are ever taxed twice.

Let me ask this example:

Year 1: 94k traditional IRa balance. 6k backdoor roth. I pay on 94% of 6k

Year 2: traditional IRa earns 3k interest so have 97k end of year balance. Backdoor roth 6k. Do I still pay (about) on 97% of the 6k I converted?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 8:27 am
retiredjg wrote: Sat Oct 01, 2022 8:23 am
roccodean wrote: Sat Oct 01, 2022 8:19 am Regarding the pro rata, using an example for simple math.
Year 1: If have 94k in traditional IRA, back door roth 6k, pay taxes on 94% of 6k.

Year 2: same scenario…you pay taxes again on 94% of 6k ?

(I’m confused bc it seems like that 94k would be taxed twice then)
The numbers will not be exactly the same each year. But for each year because the IRA grows and shrinks with the market. But they will always be mostly pre-tax with just a little after-tax.

No dollars are ever taxed twice.

Let me ask this example:

Year 1: 94k traditional IRa balance. 6k backdoor roth. I pay on 94% of 6k

Year 2: traditional IRa earns 3k interest so have 97k end of year balance. Backdoor roth 6k. Do I still pay (about) on 97% of the 6k I converted?
After you take out the money in year 1, there is about 94k left. It grows to $97k and you add $6k in non-deductible contributions for a total of $103k.

The $6k you take out would be taxed at about 94% again this year.

These numbers are not exact because there is some basis left in that $97k and because I've been rounding for the sake of showing an example.



Note that I have edited a couple of posts above to make things more clear.
Last edited by retiredjg on Sat Oct 01, 2022 8:46 am, edited 1 time in total.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 8:33 am
roccodean wrote: Sat Oct 01, 2022 8:27 am
retiredjg wrote: Sat Oct 01, 2022 8:23 am
roccodean wrote: Sat Oct 01, 2022 8:19 am Regarding the pro rata, using an example for simple math.
Year 1: If have 94k in traditional IRA, back door roth 6k, pay taxes on 94% of 6k.

Year 2: same scenario…you pay taxes again on 94% of 6k ?

(I’m confused bc it seems like that 94k would be taxed twice then)
The numbers will not be exactly the same each year. But for each year because the IRA grows and shrinks with the market. But they will always be mostly pre-tax with just a little after-tax.

No dollars are ever taxed twice.

Let me ask this example:

Year 1: 94k traditional IRa balance. 6k backdoor roth. I pay on 94% of 6k

Year 2: traditional IRa earns 3k interest so have 97k end of year balance. Backdoor roth 6k. Do I still pay (about) on 97% of the 6k I converted?
After you take out the money in year 1, there is about 94k left. It grows to $97k and you add $6k in non-deductible contributions for a total of $113k. The $6k you take out would be taxed at about 95% (107 divided by 113)


Note that I have edited a couple of posts above to make things more clear.
Whee did you get 113k from?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

94k left
add 3 k earnings
add 6 k contribution for backdoor

opps....should be $103. Sorry. I'll fix it.
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roccodean
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Re: Portfolio Question

Post by roccodean »

In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says Line 2 “enter your total basis in IRAs”, should it say 94k here ?

Or does it only say this on line 6 “enter value on all traditional IRa ….”
Last edited by roccodean on Sat Oct 01, 2022 8:50 am, edited 1 time in total.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Are you actually looking at your own Form 8606 or are you trying to learn something from a blank Form 8606.

Are you going to answer the questions I asked above?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Yes, line 6 is where you would enter the value of the extra traditional IRA.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
So line 6 “enter value of all traditional ….” Will be 96k ?
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 8:52 am Are you actually looking at your own Form 8606 or are you trying to learn something from a blank Form 8606.

Are you going to answer the questions I asked above?
Just looking at blank form. I don’t have mine with me currently.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
I am still confused by line 2. What does basis mean?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 8:53 am
retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
So line 6 “enter value of all traditional ….” Will be 96k ?
I think you must have meant to type $94k instead of $96k.

If the value of the traditional IRA is 94k at the end of the year in which you did a Roth conversion, you put $94k on line 6.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 8:57 am
retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
I am still confused by line 2. What does basis mean?
Basis means after-tax money.

The first time you use the form, you do not have any basis brought forward from previous years. You enter your $6k non-deductible contribution on line 1 and leave line 2 blank.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 9:12 am
roccodean wrote: Sat Oct 01, 2022 8:57 am
retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
I am still confused by line 2. What does basis mean?
Basis means after-tax money.

The first time you use the form, you do not have any basis brought forward from previous years. You enter your $6k non-deductible contribution on line 1 and leave line 2 blank.
If my tax guy did mess this up for the last few years Ans never did line 2 correct from day 1. Then how do I know what line 2 should be. Bc the traditional IRa has been earning.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sat Oct 01, 2022 9:18 am
retiredjg wrote: Sat Oct 01, 2022 9:12 am
roccodean wrote: Sat Oct 01, 2022 8:57 am
retiredjg wrote: Sat Oct 01, 2022 8:50 am
roccodean wrote: Sat Oct 01, 2022 8:44 am In the example above year 1 (94k in traditional on 12/31) on the 8606 form where it says “enter your total basis in IRAs”, should it say 94k here ?
No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
I am still confused by line 2. What does basis mean?
Basis means after-tax money.

The first time you use the form, you do not have any basis brought forward from previous years. You enter your $6k non-deductible contribution on line 1 and leave line 2 blank.
If my tax guy did mess this up for the last few years Ans never did line 2 correct from day 1. Then how do I know what line 2 should be. Bc the traditional IRa has been earning.
To fix it properly, you would have to go back to the very first backdoor Roth and reconstruct all the Forms 8606 from the beginning. Each form builds upon the previous year's form. Line 14 from the first year goes onto line 2 of the next year. Line 14 of the second year goes onto line 2 of the 3rd year. And so on.

You would also have to amend your tax returns for the years it was done incorrectly (the last 3 years anyway).

Obviously, your accountant is not going to be happy about this if it actually was done wrong. Particularly when you go in and tell him (the professional) that a bunch of people on the internet said he did it wrong.


Are you ever going to answer the questions I asked above? :happy
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sat Oct 01, 2022 9:30 am
roccodean wrote: Sat Oct 01, 2022 9:18 am
retiredjg wrote: Sat Oct 01, 2022 9:12 am
roccodean wrote: Sat Oct 01, 2022 8:57 am
retiredjg wrote: Sat Oct 01, 2022 8:50 am No. Your basis is after-tax dollars. That number will never be anywhere near 94k. Most of that 94k is still pre-tax.


The "enter your total basis in IRAs" line (I assume you mean line 2) means to bring basis forward to this year's form from last year's form (from line 14). If there is no basis from last year's form, leave that line blank.
I am still confused by line 2. What does basis mean?
Basis means after-tax money.

The first time you use the form, you do not have any basis brought forward from previous years. You enter your $6k non-deductible contribution on line 1 and leave line 2 blank.
If my tax guy did mess this up for the last few years Ans never did line 2 correct from day 1. Then how do I know what line 2 should be. Bc the traditional IRa has been earning.
To fix it properly, you would have to go back to the very first backdoor Roth and reconstruct all the Forms 8606 from the beginning. Each form builds upon the previous year's form. Line 14 from the first year goes onto line 2 of the next year. Line 14 of the second year goes onto line 2 of the 3rd year. And so on.

You would also have to amend your tax returns for the years it was done incorrectly (the last 3 years anyway).

Obviously, your accountant is not going to be happy about this if it actually was done wrong. Particularly when you go in and tell him (the professional) that a bunch of people on the internet said he did it wrong.


Are you ever going to answer the questions I asked above? :happy

What question?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

retiredjg wrote: Sat Oct 01, 2022 7:56 am
roccodean wrote: Sat Oct 01, 2022 7:34 am Her company got purchased so we were forced to move her 403b to an IRA...
What year did this happen?

How many years have you been using the backdoor Roth process?
These questions from earlier this morning.
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roccodean
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Re: Portfolio Question

Post by roccodean »

A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?

2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
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Re: Portfolio Question

Post by roccodean »

HomeStretch wrote: Fri Sep 30, 2022 7:01 am You have received good feedback regarding your portfolio’s tax efficiency.

Two comments:

(1) With a large portfolio and Taxable account balance, you may no longer need a dedicated emergency fund (EF). The $500k you hold at Ally earning 2% could also be safely held in state-tax exempt U.S. Treasuries likely earning a higher yield. In a brokerage account, your choices range from a liquid treasuries-only money market fund to T-Bills (with maturities as short as 4 weeks) to a short-term U.S. treasury fund.

I-Bonds in a TreasuryDirect account have a 6-month composite rate of 9.62% and are Federal tax deferred/state tax exempt. I-Bonds generally have to be held for a minimum of 1 year and have low purchase limits.

(2) Your annual HSA contribution is $3,650. Do you only have self coverage under a HSA-eligible HDHP?
1) how can u purchase these US treasuries.

2) yes, it’s just me in HDHP so 3650 is max. Wife/kids on her medical plan (not a hsa)
HomeStretch
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Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Sun Oct 02, 2022 6:50 am
HomeStretch wrote: Fri Sep 30, 2022 7:01 am … (1) With a large portfolio and Taxable account balance, you may no longer need a dedicated emergency fund (EF). The $500k you hold at Ally earning 2% could also be safely held in state-tax exempt U.S. Treasuries likely earning a higher yield. In a brokerage account, your choices range from a liquid treasuries-only money market fund to T-Bills (with maturities as short as 4 weeks) to a short-term U.S. treasury fund.

I-Bonds in a TreasuryDirect account have a 6-month composite rate of 9.62% and are Federal tax deferred/state tax exempt. I-Bonds generally have to be held for a minimum of 1 year and have low purchase limits. …
… 1) how can u purchase these US treasuries. …
You can purchase individual U.S. treasuries at TreasuryDirect or a brokerage. The latter has more options (i.e., can buy/sell in the secondary market, buy in an existing brokerage account, etc.). The Finance Buff (TFB) discusses how to buy treasuries at brokerages here:
https://thefinancebuff.com/treasury-bil ... arket.html

Instead of buying individual treasuries, you can hold a US treasuries fund in a brokerage account.

You can buy I-Bonds only in a TreasuryDirect account. TFB has a post about buying I-Bonds here:
https://thefinancebuff.com/how-to-buy-i-bonds.html

For more info on I-Bonds, you can check out TreasuryDirect’s FAQs page about I-Bonds and search the forum for the active I-Bond mega thread.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Sun Oct 02, 2022 6:47 am A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?
Basis is not found on your IRA statement. Your IRA custodian does not know if a contribution is deductible or not. So your IRA custodian does not know what the basis is.

Basis is calculated on Form 8606. In most situations, the first year the form 8606 is completed, there is no basis on line 2.


2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
She could use non-deductible contributions to traditional IRA, but it is often better to just put that money into a taxable account (not use IRA at all for her).

If you do amend the tax years that seem to be incorrect, she may be able to roll most (not all) of her IRA into her current 403b. What is left (the basis) can then be converted to Roth. After that, she can continue to use the backdoor Roth method as long as there is no other IRA.
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roccodean
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Re: Portfolio Question

Post by roccodean »

Spoke with my 401k Fidelity and I cannot specify where my investments go (Roth vs not roth). All goes proportionally.
My current breakdown is:
39.1% Roth dollar deferral
28.8% Employee deferral
16.9% Safe harbor nonelective
9.4% Prior emplyer
5.7% Roth IPC-Employee

Couple questions:
1) After I fill her 403b (completely tax deferred traditional 403b) with bonds, I will fill my above account with bonds I am assuming. If I need this entire account to fulfill by bond allocation goal, should I do all bonds in here even though there is a significant Roth portion? (of note the agent said when I can/must withdraw from fund I can choose to take out of only roth part, etc)

2) The current target date funds I am in bout our 403b and 401k obviously took a hit the last year or so. Does it matter that I am selling when those are low and buying bonds?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Oct 03, 2022 7:54 am 1) After I fill her 403b (completely tax deferred traditional 403b) with bonds, I will fill my above account with bonds I am assuming. If I need this entire account to fulfill by bond allocation goal, should I do all bonds in here even though there is a significant Roth portion? (of note the agent said when I can/must withdraw from fund I can choose to take out of only roth part, etc)
Yes. It is more important to get to/maintain your desired stock to bond ratio than to worry about having bonds in the Roth portion of your 401k.

2) The current target date funds I am in bout our 403b and 401k obviously took a hit the last year or so. Does it matter that I am selling when those are low and buying bonds?
You will also be buying bonds while they are low so the loss will not be as large as it may seem to you.

It is important to have your portfolio at a stock to bond ratio that you are comfortable with. You have decided on 60/40. You need to do whatever is needed to get there.

Also, you I believe you will be buying stocks in taxable won't you? Selling stocks low in the 403b and 401k will be offset by buying stocks low in the taxable account.
HomeStretch
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Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Mon Oct 03, 2022 7:54 am Spoke with my 401k Fidelity and I cannot specify where my investments go (Roth vs not roth). …
Did you find out whether your 401k plan allows step 2 of the mega backdoor Roth to go to a Roth IRA rather than Roth 401k?

This is just a portfolio optimization question which would allow you to hold the Roth IRA in equities as opposed to currently holding a portion of your Roth 401k in bonds. The possible downside is if your state has poor IRA protections.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Oct 03, 2022 8:16 am
roccodean wrote: Mon Oct 03, 2022 7:54 am 1) After I fill her 403b (completely tax deferred traditional 403b) with bonds, I will fill my above account with bonds I am assuming. If I need this entire account to fulfill by bond allocation goal, should I do all bonds in here even though there is a significant Roth portion? (of note the agent said when I can/must withdraw from fund I can choose to take out of only roth part, etc)
Yes. It is more important to get to/maintain your desired stock to bond ratio than to worry about having bonds in the Roth portion of your 401k.

2) The current target date funds I am in bout our 403b and 401k obviously took a hit the last year or so. Does it matter that I am selling when those are low and buying bonds?
You will also be buying bonds while they are low so the loss will not be as large as it may seem to you.

It is important to have your portfolio at a stock to bond ratio that you are comfortable with. You have decided on 60/40. You need to do whatever is needed to get there.

Also, you I believe you will be buying stocks in taxable won't you? Selling stocks low in the 403b and 401k will be offset by buying stocks low in the taxable account.

Yes , I will be selling bonds in taxable account (at a loss so I assume I get tax loss harvest?)

And buying stocks in taxable.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

HomeStretch wrote: Mon Oct 03, 2022 9:03 am
roccodean wrote: Mon Oct 03, 2022 7:54 am Spoke with my 401k Fidelity and I cannot specify where my investments go (Roth vs not roth). …
Did you find out whether your 401k plan allows step 2 of the mega backdoor Roth to go to a Roth IRA rather than Roth 401k?

This is just a portfolio optimization question which would allow you to hold the Roth IRA in equities as opposed to currently holding a portion of your Roth 401k in bonds. The possible downside is if your state has poor IRA protections.

I did not ask this. I cannot do the megabackdoor roth until next year though.
HomeStretch
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Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Mon Oct 03, 2022 9:09 am
HomeStretch wrote: Mon Oct 03, 2022 9:03 am
roccodean wrote: Mon Oct 03, 2022 7:54 am Spoke with my 401k Fidelity and I cannot specify where my investments go (Roth vs not roth). …
Did you find out whether your 401k plan allows step 2 of the mega backdoor Roth to go to a Roth IRA rather than Roth 401k?

This is just a portfolio optimization question which would allow you to hold the Roth IRA in equities as opposed to currently holding a portion of your Roth 401k in bonds. The possible downside is if your state has poor IRA protections.

I did not ask this. I cannot do the megabackdoor roth until next year though.
Your 401k plan document or 401k Summary Plan Description (SPD) will have this information. The SPD is often found in your online account.

You have received a lot of good feedback in this thread. Best of luck with your portfolio.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Sun Oct 02, 2022 7:36 am
roccodean wrote: Sun Oct 02, 2022 6:47 am A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?
Basis is not found on your IRA statement. Your IRA custodian does not know if a contribution is deductible or not. So your IRA custodian does not know what the basis is.

Basis is calculated on Form 8606. In most situations, the first year the form 8606 is completed, there is no basis on line 2.


2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
She could use non-deductible contributions to traditional IRA, but it is often better to just put that money into a taxable account (not use IRA at all for her).

If you do amend the tax years that seem to be incorrect, she may be able to roll most (not all) of her IRA into her current 403b. What is left (the basis) can then be converted to Roth. After that, she can continue to use the backdoor Roth method as long as there is no other IRA.

Spoke w wife's Fidelity 403b people. They said she can roll over her traditional IRA that is at vanguard into the 403b. She said I can roll over the entire amount into her 403b. Assuming I amend or did the 8606 correct all these years....is that correct?

She stated that this will be under her 403b but in the "bucket" of IRA rollover.

She also said that I can choose different investment for different "buckets"- would this make a difference? I am assuming no bc I should have taxable bond funds in entire account?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Oct 03, 2022 11:04 am
retiredjg wrote: Sun Oct 02, 2022 7:36 am
roccodean wrote: Sun Oct 02, 2022 6:47 am A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?
Basis is not found on your IRA statement. Your IRA custodian does not know if a contribution is deductible or not. So your IRA custodian does not know what the basis is.

Basis is calculated on Form 8606. In most situations, the first year the form 8606 is completed, there is no basis on line 2.


2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
She could use non-deductible contributions to traditional IRA, but it is often better to just put that money into a taxable account (not use IRA at all for her).

If you do amend the tax years that seem to be incorrect, she may be able to roll most (not all) of her IRA into her current 403b. What is left (the basis) can then be converted to Roth. After that, she can continue to use the backdoor Roth method as long as there is no other IRA.

Spoke w wife's Fidelity 403b people. They said she can roll over her traditional IRA that is at vanguard into the 403b. She said I can roll over the entire amount into her 403b. Assuming I amend or did the 8606 correct all these years....is that correct?
The 403b is not allowed to accept "basis" (already taxed money). At this point, it appears there is some basis in the IRA, but just don't know how much. It should not be much.


She also said that I can choose different investment for different "buckets"- would this make a difference? I am assuming no bc I should have taxable bond funds in entire account?
What the money is invested in does not matter.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Oct 03, 2022 11:44 am
roccodean wrote: Mon Oct 03, 2022 11:04 am
retiredjg wrote: Sun Oct 02, 2022 7:36 am
roccodean wrote: Sun Oct 02, 2022 6:47 am A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?
Basis is not found on your IRA statement. Your IRA custodian does not know if a contribution is deductible or not. So your IRA custodian does not know what the basis is.

Basis is calculated on Form 8606. In most situations, the first year the form 8606 is completed, there is no basis on line 2.


2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
She could use non-deductible contributions to traditional IRA, but it is often better to just put that money into a taxable account (not use IRA at all for her).

If you do amend the tax years that seem to be incorrect, she may be able to roll most (not all) of her IRA into her current 403b. What is left (the basis) can then be converted to Roth. After that, she can continue to use the backdoor Roth method as long as there is no other IRA.

Spoke w wife's Fidelity 403b people. They said she can roll over her traditional IRA that is at vanguard into the 403b. She said I can roll over the entire amount into her 403b. Assuming I amend or did the 8606 correct all these years....is that correct?
The 403b is not allowed to accept "basis" (already taxed money). At this point, it appears there is some basis in the IRA, but just don't know how much. It should not be much.


She also said that I can choose different investment for different "buckets"- would this make a difference? I am assuming no bc I should have taxable bond funds in entire account?
What the money is invested in does not matter.

And the “basis” will be the amount on most recent 8606 correct? Hence, I would leave that amount in the traditional IRA and convert that part to a Roth IRA, so in the future will be a “clean” back door roth and won’t have to pro rate?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Oct 03, 2022 11:55 am
retiredjg wrote: Mon Oct 03, 2022 11:44 am
roccodean wrote: Mon Oct 03, 2022 11:04 am
retiredjg wrote: Sun Oct 02, 2022 7:36 am
roccodean wrote: Sun Oct 02, 2022 6:47 am A couple years, so if incorrect can addend. So my follow up questions:

1) the first year accountant completed the 8606, where can he find the basis of my traditional IRa (line 2). Will it be in my ira statement ?
Basis is not found on your IRA statement. Your IRA custodian does not know if a contribution is deductible or not. So your IRA custodian does not know what the basis is.

Basis is calculated on Form 8606. In most situations, the first year the form 8606 is completed, there is no basis on line 2.


2) seems like my wife should not do backdoor roth since roughly 90% is being taxed at my current very high tax rate. Instead, should she just do traditional non deductible (bc income too high) IRA?
She could use non-deductible contributions to traditional IRA, but it is often better to just put that money into a taxable account (not use IRA at all for her).

If you do amend the tax years that seem to be incorrect, she may be able to roll most (not all) of her IRA into her current 403b. What is left (the basis) can then be converted to Roth. After that, she can continue to use the backdoor Roth method as long as there is no other IRA.

Spoke w wife's Fidelity 403b people. They said she can roll over her traditional IRA that is at vanguard into the 403b. She said I can roll over the entire amount into her 403b. Assuming I amend or did the 8606 correct all these years....is that correct?
The 403b is not allowed to accept "basis" (already taxed money). At this point, it appears there is some basis in the IRA, but just don't know how much. It should not be much.


She also said that I can choose different investment for different "buckets"- would this make a difference? I am assuming no bc I should have taxable bond funds in entire account?
What the money is invested in does not matter.

And the “basis” will be the amount on most recent 8606 correct? Hence, I would leave that amount in the traditional IRA and convert that part to a Roth IRA, so in the future will be a “clean” back door roth and won’t have to pro rate?
Yes. The basis will be the amount on line 14 of the most recent 8606.

Yes, leave that amount in the tIRA, send the rest to the 401k, convert the basis to Roth IRA. Then, proceed with backdoor Roth as usual with no basis floating around and no pro-rating.

Looks like you've got it!
Topic Author
roccodean
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Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

I cannot thank you all enough for your help. You have been very generous with your time and knowledge. I am going to do some math and then I’ll post my final plan. Thanks again.
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