Back door Roth IRA

Client has been making contributions to Roth IRA via Back Door method (contributing to non deductible Traditional IRA,then converting to Roth) for two years. We are considering making similar contribution to Roth this year, but there is a chance she will be laid off from her job soon and, if so, we will want to rollover her existing 401K to a self directed IRA. If this rollover is done during the same year, will it compromise her tax free Backdoor contribution made earlier in the year?

Thanks!



Yes, it sure will. It would make the Roth conversion mostly taxable, and in addition she could not use this strategy in the future without paying taxes on conversions. Of course, if her income goes down, she may be eligible for regular Roth contributions or deductible TIRA contributions.



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