r7950 wrote:"I am not currently eligible to contribute to a Roth IRA"
Do you have a traditional IRA? If not, you can still contribute to a Roth, see link here.
Thanks for this link, I had no idea this was an option.
Am I correct in assuming a "rollover" IRA (rolled over from a 401K plan at a previous job) is a traditional IRA?
It sounds like there is no limit, other than since all the money in my traditional IRA is pre-tax, I would have to pay income taxes on any dollar I convert. Based on being in a high income tax state, where all of my marginal income is taxed at the top rate (9.9%), plus 28% federal, I don't think this backdoor option would make sense for me right now, as most likely when I would eventually draw down my traditional IRA my income tax rates would be lower. I'm not really seeing when the backdoor IRA would ever make sense, unless say I became unemployed and had no work income (so couldn't contribute to a Roth) and then could convert the IRA into the Roth through the backdoor at a lower tax rate (maybe I could conveniently move across the Columbia for a year and watch my state income tax rate go to zero).
Seems like there must be other scenarios and I'm missing something because people wouldn't be taking advantage of it if there wasn't an advantage. Maybe there is some weird discounting, like if I pay 38% tax on $10K now and then in 20 years it grows to $100K in a Roth and then I only payed $3.8K on the $100K in my pocket, where instead I leave it where it is and it grows to $100K and then I take it out and even if my tax rate is only 15% I still pay $15K in taxes. I guess I answered my own question;) I guess the rub is you need to come up with the money to pay the tax bill using funds you have on hand, so at 38% tax rate I am probably not going to be able to roll over $200K in one year because I don't happen to have $76K in my sock drawer.
Is this how Mitt Romney had a Roth IRA?
Did you do this with some assistance/guidance from a financial advisor? I have an account with Fidelity, I assume they could help me with this? It seems like it might make sense to try to move $10-20K over this year as I could reasonably pay the taxes on that without taking too big a hit on my emergency funds.