Hi, I heard once you are a home owning adult, you git yourself an accountant. Why?

[Spacehead]

1. Google Search "Backdoor ROTH" and learn it. It's easy. Open a Traditional IRA with the same place your ROTH IRA is. Contribute to Traditional IRA with "After tax" funds. Then convert it to ROTH. Simple.

A question i forgot to ask before. Say i open a traditional IRA this year(2021) & convert it to a Roth. What about next year? Do you open a new traditional IRA & convert it to a new Roth account or do you add it to the Roth account you opened in 2021?

My current traditional IRA was opened in 2008 whith rollover money when my employer closed our 401K. I opened a Roth on 2011. They aren't thru the same company. It's my understanding that having an existing traditional IRA would make it harder to go the "backdoor" route?

 

[Torn Mind]

A question i forgot to ask before. Say i open a traditional IRA this year(2021) & convert it to a Roth. What about next year? Do you open a new traditional IRA & convert it to a new Roth account or do you add it to the Roth account you opened in 2021?

My current traditional IRA was opened in 2008 whith rollover money when my employer closed our 401K. I opened a Roth on 2011. They aren't thru the same company. It's my understanding that having an existing traditional IRA would make it harder to go the "backdoor" route?

No obstacle. But your funding limits remain as if you had only one Roth. https://www.investopedia.com/articles/retirement/08/11-things-to-know-iras.asp

 

[sdifox]

I tried: git fetch cpa
but it didn't work for me

Try CPA.

I married one so I no longer have to do taxes.

 

[s0me0nesmind1]

A question i forgot to ask before. Say i open a traditional IRA this year(2021) & convert it to a Roth. What about next year? Do you open a new traditional IRA & convert it to a new Roth account or do you add it to the Roth account you opened in 2021?

My current traditional IRA was opened in 2008 whith rollover money when my employer closed our 401K. I opened a Roth on 2011. They aren't thru the same company. It's my understanding that having an existing traditional IRA would make it harder to go the "backdoor" route?

No, when I say "convert" I mean you convert the funds itself. I will forever have a traditional IRA that has $0 in it, that only has money for 1 single day that I do the conversion.


But yes, if you already have an existing traditional IRA it would make it harder to do the backdoor ROTH - not because it's more difficult per say - it's that when you convert from traditional to the ROTH IRA, that is an investment taxable event. That means, any gains are taxed accordingly. I actually had similar happen to me - about 3 years ago I learned mid-year that I no longer qualified for direct ROTH contributions due to my increased income.... but I had already made the contributions for that year. I called up Vanguard - and they basically did a reversal where it converted my ROTH funds - to traditional after tax - to then convert it back to ROTH and complete the backdoor method (and reverse my "normal" contribution). The problem is, it had already made money sitting in the index funds that year - so my gains of ~$150 for the year also had to be converted. That resulted in me having to pay taxes on that amount.

So if you ALREADY have funds in a traditional IRA - you will constantly have to deal with that. A backdoor ROTH works because you put in $6000 (or whatever the max is for the year) to the traditional, you keep it in there for 1 day as a simple money market account (so it doesn't gain interest), and you then convert it to the next day to ROTH. It gained no interest, thus no taxable event.

I would see about moving the funds in your traditional IRA to your current employer 401k if possible if backdoor ROTH is something that seems helpful to you.




Folks like WhiteCoatInvestor has a great step-by-step guide of how to do the overall backdoor roth process within Vanguard:

How to Do a Backdoor Roth IRA [Step-by-Step Guide] | White Coat Investor

This Backdoor Roth IRA tutorial takes you step-by-step through the contribution process including Form 8606, tax implications, common mistakes, and lots more.

www.whitecoatinvestor.com

 

[ponyo]

So Backdoor Roth IRA people, so if I have single traditional IRA that I opened in like 1996 but don't want to convert that to Roth IRA because of taxes, can I open another traditional IRA and only convert the new $6,000 I put in the new traditional IRA account to Roth and not touch my old traditional IRA account?

 

[Fritzo]

Are you dense? Knowing tax laws is not a crime, nor is it cheating. You'll be surprised how many tax deductions are overlooked at fed and state levels.

LOL- anytime someone talks like that it reminds me of this:

 

[s0me0nesmind1]

So Backdoor Roth IRA people, so if I have single traditional IRA that I opened in like 1996 but don't want to convert that to Roth IRA because of taxes, can I open another traditional IRA and only convert the new $6,000 I put in the new traditional IRA account to Roth and not touch my old traditional IRA account?

The answer - to how I commonly understand it - is No. Well - Yes, you can - but it doesn't get around the taxable event to be more precise:

The pro-rata rule. The IRS requires rollovers from traditional IRAs to Roth IRAs to be done pro rata. Here's how it works: When determining your tax bill on a conversion from a traditional IRA to a Roth IRA, the IRS is going to look at all of your traditional IRA accounts combined. If all of your traditional IRAs combined consist of, say, 70% pre-tax money and 30% after-tax money, that ratio determines what percentage of the money you convert to a Roth is going to be taxable. In this example, no matter how much money you convert or which IRA account you pull the money from, 70% of the amount you convert to the Roth will be taxable. You can't choose to convert only after-tax money; the IRS won't allow it. And a word about timing: the IRS applies the pro-rata rule to your total IRA balance at year-end, not at the time of conversion.

Backdoor Roth IRA: Definition, Rules and How To Open One - NerdWallet

A backdoor Roth IRA lets you convert a traditional IRA into a Roth IRA, which could save on taxes. Backdoor Roths are an option if your income is too high for a Roth IRA.

www.nerdwallet.com

 

[ponyo]

The answer - to how I commonly understand it - is No. Well - Yes, you can - but it doesn't get around the taxable event to be more precise:

Backdoor Roth IRA: Definition, Rules and How To Open One - NerdWallet

A backdoor Roth IRA lets you convert a traditional IRA into a Roth IRA, which could save on taxes. Backdoor Roths are an option if your income is too high for a Roth IRA.

www.nerdwallet.com

The $2k I put into traditional IRA back in 1996 or so is now worth like $625k or so. So I don't want to roll that over to Roth IRA because then I would have to pay like extra $280k in taxes or so. I would be better off just keeping it traditional IRA and not paying taxes now and take mandatory required annual distribution when I'm 72 years old.

 

[dank69]

The $2k I put into traditional IRA back in 1996 or so is now worth like $625k or so. So I don't want to roll that over to Roth IRA because then I would have to pay like extra $280k in taxes or so. I would be better off just keeping it traditional IRA and not paying taxes now and take mandatory required annual distribution when I'm 72 years old.

average annual rate of return was just shy of 25%
wut

 

[s0me0nesmind1]

The $2k I put into traditional IRA back in 1996 or so is now worth like $625k or so. So I don't want to roll that over to Roth IRA because then I would have to pay like extra $280k in taxes or so. I would be better off just keeping it traditional IRA and not paying taxes now and take mandatory required annual distribution when I'm 72 years old.

Probably, though a workaround I guess could be rolling it over to another kind of retirement (401k/403b, or whatever) if available - which given your lifestyle I'm guessing you don't have at this point?

Great question for an accountant though just to make sure But personally with your wealth+age, I wouldn't worry about contributing $7k or whatever to a ROTH. Helpful for us peasants over time, but probably peanuts for you.

 

[ponyo]

average annual rate of return was just shy of 25%
wut

I took this screenshot on Monday before my Cancun trip. I'm in Cancun now on public wifi so I don't want to check my bank balance but it should be similar. I don't worry about this money because it's one account, and I can't touch it until I'm 60 and that's many years off. I figure this account will be worth couple million dollars by then. I have like 8-9 different brokerages I use for my regular accounts which I pay crapload of taxes on. Those I care about as the balances on those are way higher and I can use the money now as it's normal account and continue to pay taxes on every year. Of course, I started those accounts with much larger balances but when I'm paying like close to 30-50% in taxes on those gains, it takes lot of the returns away. That's why tax-free compound investing is so important.

Probably, though a workaround I guess could be rolling it over to another kind of retirement (401k/403b, or whatever) if available - which given your lifestyle I'm guessing you don't have at this point?

Great question for an accountant though just to make sure But personally with your wealth+age, I wouldn't worry about contributing $7k or whatever to a ROTH. Helpful for us peasants over time, but probably peanuts for you.

I do not have 401k. So that might be an option like you say. I need to quit being lazy and look into this stuff.

 

[Spacehead]

I would see about moving the funds in your traditional IRA to your current employer 401k if possible if backdoor ROTH is something that seems helpful to you.

Maybe you missed it but the reason i opened the traditional IRA i currently have is because my employer got rid of our 401K & i had to move those funds somewhere. That's the account with the most money in it of all my accounts.

I don't know if i'd ever do this but since the topic came up i figured i'd ask some questions to help me understand this better, so i do appreciate yours, Brians & others input on this.

 

[s0me0nesmind1]

Maybe you missed it but the reason i opened the traditional IRA i currently have is because my employer got rid of our 401K & i had to move those funds somewhere. That's the account with the most money in it of all my accounts.

I don't know if i'd ever do this but since the topic came up i figured i'd ask some questions to help me understand this better, so i do appreciate yours, Brians & others input on this.

Sure - yeah, so I guess the way I should have framed it better is - if in the future you move jobs, etc... and the new one has a 401k then it's something you can potentially look into. I'm also in the world of constantly having new employers heh - I'm in my early 30's and have had four 401k accounts over the years.

But man... your employer doesn't offer anything related to retirement?

 

[dank69]

I took this screenshot on Monday before my Cancun trip. I'm in Cancun now on public wifi so I don't want to check my bank balance but it should be similar. I don't worry about this money because it's one account, and I can't touch it until I'm 60 and that's many years off. I figure this account will be worth couple million dollars by then. I have like 8-9 different brokerages I use for my regular accounts which I pay crapload of taxes on. Those I care about as the balances on those are way higher and I can use the money now as it's normal account and continue to pay taxes on every year. Of course, I started those accounts with much larger balances but when I'm paying like close to 30-50% in taxes on those gains, it takes lot of the returns away. That's why tax-free compound investing is so important.


I do not have 401k. So that might be an option like you say. I need to quit being lazy and look into this stuff.

This still doesn't explain how you found an investment vehicle that reliably returns ~25% every single year. In 10 more years it will be worth almost $6M. In 20 years it will be $54M. Etc. etc.

 

[s0me0nesmind1]

This still doesn't explain how you found an investment vehicle that reliably returns ~25% every single year. In 10 more years it will be worth almost $6M. In 20 years it will be $54M. Etc. etc.

Guessing from individual stocks and actively playing with investments instead of just buying and sticking with Index funds. So...Early picking of TSLA stock?

 

[Spacehead]

The $2k I put into traditional IRA back in 1996 or so is now worth like $625k or so.

Did you only put in the 1st 2K & never contributed any more? Or am i/we reading this wrong? If so, damn!!!

average annual rate of return was just shy of 25%
wut

 

[dank69]

Guessing from individual stocks and actively playing with investments instead of just buying and sticking with Index funds. So...Early picking of TSLA stock?

If this dude can reliably achieve 25% every single year for 25 straight years he would be a billionaire on the cover of every magazine.

 

[Torn Mind]

Guessing from individual stocks and actively playing with investments instead of just buying and sticking with Index funds. So...Early picking of TSLA stock?

Maybe if he bought it at the IPO at 2010. But it would be hard to believe 2000 dollars was just sitting there for the time Tesla was not public.

 

[Torn Mind]

If this dude can reliably achieve 25% every single year for 25 straight years he would be a billionaire on the cover of every magazine.

He is a millionaire though. So he definitely has the mindset to hit gold...

 

[dank69]

Maybe if he bought it at the IPO at 2010. But it would be hard to believe 2000 dollars was just sitting there for the time Tesla was not public.

$2k at IPO would translate to ~$165k in July 2020. Now yeah, by 2010 the $2k was already near $45k, so possibly? Something isn't adding up here.

 

[dank69]

I think Buffett is near 20% AAR?

 

[ponyo]

Did you only put in the 1st 2K & never contributed any more? Or am i/we reading this wrong? If so, damn!!!

yes. Didn't put a dollar more than the initial $2k.

If this dude can reliably achieve 25% every single year for 25 straight years he would be a billionaire on the cover of every magazine.

lol. The returns are never smooth but I've greatly outperformed majority of funds out there for long periods of time. You think those stupid people you see in magazines are the only people who actually get lucky? In order to have crazy returns, you need to take crazy risks. Which means going all in on individual stock or options. You can't do that if you run a fund. I can. There are people who make my returns look tiny. Emmet is one of those people. He took $2,700 in his IRA and turned it into over $29 million. I think his total return is over $100 million in all his accounts.

I respect Buffet but he's not god.

 

[dank69]

yes. Didn't put a dollar more than the initial $2k.


lol. The returns are never smooth but I've greatly outperformed majority of funds out there for long periods of time. You think those stupid people you see in magazines are the only people who actually get lucky? In order to have crazy returns, you need to take crazy risks. Which means going all in on individual stock or options. You can't do that if you run a fund. I can. There are people who make my returns look tiny. Emmet is one of those people. He took $2,700 in his IRA and turned it into over $29 million. I think his total return is over $100 million in all his accounts.

I respect Buffet but he's not god.

You have to get insanely lucky over, and over, and over, and over, and over, and never once get unlucky.

 

[kt]

LOL- anytime someone talks like that it reminds me of this:
View attachment 47186

I don't claim to know all the tax laws, nor do I have any interest in learning them. That's what CPA's are here for and that's what I pay them to do.

 

[JEDIYoda]

I've owned my house for 21 years, outright. Most of my equity is in SPY. I have never talked to an accountant in my life. Or a tax attorney (use Turbotax Premier).

My friend!! In all the time that I have been following you if i may -- You are one of these people who is an exception to the basic rules!! Peace!!