I exceeded the standard Roth income limits for contribution in 2016. Attempting to follow some Roth "back door" conversion steps at the last minute on Friday 12/30/2016, the Fidelity rep stated there was not enough time for the 2016 Roth conversion to take place. So now that I effectively have a 2016 Traditional IRA, should I just fund it for 2017 limits then do the Roth conversion for all funds in the IRA? Funds for both 2016/17 will be from after-tax source. TIA
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posted: Jan. 2, 2017 @ 3:53p
I'm not an expert on this, but it sounds ok to me. I did something similar: in March 2010 I made a $5000 traditional IRA contribution for 2009, and another $5000 contribution for 2010; then I converted all $10,000 to a Roth IRA.
It doesn't matter whether you convert your 2016 TIRA and then contribute/convert your 2017 TIRA, or contribute to your 2017 TIRA and then convert the whole amount, then end result is about the same. You will need to be more careful when you fill out the forms to file your tax 2017 tax return since the contribution and conversion are done in different years, but no harm done unless you make a mistake on your tax return.
If you have pre-tax dollars in any TIRA, then you can try isolating basis to minimize taxes.
8hygro said: I exceeded the standard Roth income limits for contribution in 2016. Attempting to follow some Roth "back door" conversion steps at the last minute on Friday 12/30/2016, the Fidelity rep stated there was not enough time for the 2016 Roth conversion to take place. So now that I effectively have a 2016 Traditional IRA, should I just fund it for 2017 limits then do the Roth conversion for all funds in the IRA? Funds for both 2016/17 will be from after-tax source. TIA The Roth conversion step is independent of the trad. IRA contribution. At the time of conversion, there is nothing like converting your 2016 contribution or 2017 contribution or both. You simply convert some or all of your trad. IRA funds into Roth and it will have corresponding tax consequence. As long as this is your only trad. IRA, and you do the conversion shortly after the contribution (so that there is very little gain), the tax consequence will be minimal.
You can do the conversion at any time; it will count for the year it is done.
Doesn't really matter if done in 2016 or 2017, you will have $5,500 of basis (assuming fully funded & you're under age 50) for 2016 & $5,500 of basis for 2017, so if you convert $11k, your taxable distribution is still $0. Even better, you'll only get one 1099 to deal with when you do your 2017 tax return!
Just keep in mind that when you do the conversion in 2017 does not solely determine the prorata calculation. What determines this is all withdrawals, conversions and the deductible/non-deductible balance on 12/31/17. So if you have any deductible balances in any other IRAs they will be included in the prorata calculation.
You didn't answer the question when asked earlier if you have other deductible IRA assets. If you do, you should roll such balance(s) out into a 401k/403b or you will have a prorata problem. Also, don't be rolling any 401k/403b assets over to an IRA.
marginoferror...No other IRA's or Roths. 2016 funds are in the new IRA's core interest account. I was waiting until the 2017 wire transfer is mated up, likely tomorrow. Then I was going to perform the Roth conversion before putting all funds into a fund.
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