I have a Traditional IRA that was opened many years ago as a rollover from a previous job and is still positioned with an aggressive mix of funds. I opened a Roth IRA with a very small amount of cash at the same time.
My current income level is high so I can not contribute directly to my Roth IRA and I can not deduct my TIRA contributions. My tax bracket is 24% as Head of Household. I am aiming for 20ish years to retirement. I've maxed out my 401k contributions for 2019 and I plan to max out my HSA before taxes are due in 2020.
I'm looking for advice on how to manage and contribute to my IRAs with any remaining funds. I am interested in using the Backdoor Roth IRA conversion method, but I'm not sure how that will work in my circumstance.
This is the way I think a backdoor conversion works for me:
- I have a Traditional IRA with $35k pre-tax invested.
- I invest $6k after-tax into my Traditional IRA
- I convert $6k to my Roth IRA
- Using Fidelity for both this would be a "same trustee transfer"
- I leave the rest of the funds in my Tradition IRA
I've been reading about the Pro-Rata rule and I'm afraid this is where my plans get sticky.
Because I have $35k in my Traditional IRA from a rollover, that's a pre-tax amount. If I understand the Pro-Rata rule, I would have to pay taxes on the $6k because otherwise, I would have to roll over the entire pre-tax amount first and pay taxes on $35k. Is that correct? Does this mean without paying taxes on the entire $35k, I am stuck with contributing to my Traditional IRA with no tax deduction?
Do I understand the conversion process and Pro-Rata rule?
Should I just rebalance the aggressive mix in my Traditional IRA and reinvest in a target fund and plan to make contributions to my TIRA that are not deductible but will grow in a tax-advantaged way? That seems like my only good next option.
Submitted October 25, 2019 at 08:49PM by pdxmetta4u https://ift.tt/2BHdeuH
