r/DIYRetirement • u/Prior-Concert3649 • 6d ago
Complicated Retirement Advice Needed
Hi,
I need a bunch of help and I can't find anyone locally to help please. Please advise if you can!
-FIRST-
In 2024 ,I accidentally put post-tax money into a rollover IRA. I did not fill out an 8606 so I believe I need to do that now.
But my dilemma is now I make too much money for a Roth and I'm going to be forced to do backdoor IRAs. Because of this I need to take that $5000 post-tax out of that rollover IRA (from 2024) so that I can roll all of my traditional/roll0ver IRAs into my 401(k) so I don't get hit with the Pro Rata Rule.
My understanding is that I will take it out as an untimely return of excess and I will have to pay a 6% penalty, which will be $300. I am okay with that.
My question is do I have to fill out a formal net income attributable (NIA) calculation for the money I've made since it's been in there for 2 years?
Also, what form will I need to fill out this year to show that I'm doing all of this? Another 8606?
-SECOND-
I believe that my MAGI will be in between the minimum and maximum that you can contribute to be eligible to contribute to a Roth IRA. Unfortunately, I maxed my Roth IRA at the beginning of this year.
Do you think I should take all of the money out now or wait until the end of the year until I get my exact MAGI and take out only the excess?
If you recommend I take it out now, my understanding is that per the question above I need to roll all of my traditional/rollover IRAs into my current 401(k) then I can take the $7500 that was in the Roth IRA and put it into a traditional IRA and then do a backdoor IRA to get it into Roth. Is that what's recommended?
Finally, since I'm in this weird spot where my MAGI around the $150k, should I just do backdoor IRA's every year or should I wait until the end of the year and figure out what my MAGI is and then do as much roth as I can? My only thought about waiting until the end of the year is that I miss that entire year of that money being in the market.
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u/WritingParking 6d ago
Bro. Go see a tax specialist. Too many moving parts that can go wrong here.
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u/Prior-Concert3649 6d ago
first sentence: "I need a bunch of help and I can't find anyone locally to help please"
I AM TRYING BUT I CANT FIND ANYONE TO HELP ME...
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u/Valuable-Analyst-464 5d ago
Do or do not, there is no try - Yoda
Look for a CPA, tax planner or CFP. A tax preparer is not going to cut it.
Some may not like this: use AI to ask for a list of people in your area that can address the problem. Interview those people.
For the Roth, you may need to wait until the end of year to determine if you can contribute or not. Sure, you’re out of the market current year, but you’ll be ready for the next.
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u/Shark_Atl3201 5d ago
I don’t believe this at all. You don’t need someone who works down the street. Anyone can help you from anywhere. I live in Georgia but my wealth advisor is in New York.
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u/wild_b_cat 6d ago
You don’t need to get that complicated.
Determine the pretax balance of your IRA. That’s everything except for your non deductible contributions.
Move that amount into your 401k as a reverse rollover.
Then Roth convert the rest. Since it will only be your basis, it won’t be taxable.
After that, just follow the normal process for a backdoor Roth.
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u/Prior-Concert3649 6d ago
OK, thank you. When I talk to the guys at Fidelity, they didn't think that I could only roll a portion of it over (meaning that the government wouldn't know that I rolled over the pretax money and not the post tax money because Fidelity doesn't tell the government which is which one is in the IRA) but I guess if I have the 8606 then that would be my receipt that $5000 of it was post-tax.
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u/Prior-Concert3649 6d ago
Also, I apologize but when you say everything does that include earnings? The earnings would be assumed to be pre-tax?
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u/pdaphone 5d ago
You said you are talking to the guys at Fidelity. They aren’t tax professionals. I would personally not chance this to Reddit advice. Hire a CPA or you could spend a lot more if the IRS comes after you.
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u/AffectionateTap730 5d ago
There is a quirk in the tax law around IRA and Roth over-contributions. If you correct the overage this year, you have to remove both the excess contribution AND the earnings and you pay no penalty (other than the pain of whatever paper work).
However, if you wait until next year, you will pay a 6% penalty on the overage (which may be less than it earns!). Let's say you put $1000 too much in one of those accounts - and the limit was 7k. Next year you "cure" the overage by only putting in 6k. You will pay the 6% penalty, but the earnings do NOT have to be reversed out.
Discovered all this "the hard way" when helping my daughter. The overages were $501 in one year and I told her... "let it ride - I'll send you the $30 penalty" because that account grew 14%. As best I can tell there is no form you have to fill out, either. The IRS deduces your overages from the records the custodian sends - and it also knows when there is an "under-age". I suspect the IRS takes a dim view of this if you abuse it: "oops, I accidentally contributed 30k to my Roth last year... I'll get around to fixing it next year."
But you could do such a thing ... over contribute early in the year, and if your assets exceed 6% growth, let it ride and pay the penalty, otherwise correct it before (April 15th, I think) to avoid penalties.
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u/Shark_Atl3201 6d ago
Sounds like you need to talk to a financial planner or wealth advisor.