Process to remove deductible TIRA amounts from basis using qualified plan rollover

Submitted by David Mitchell on Fri, 2014-05-02 19:01

Hi,

I am looking for some feedback. I have a client who is under 59.5, has a MAGI of $250k+ and participates in a qualified plan (403b) at work, and I checked with the TPA for the plan to determine that they accept incoming rollovers of pre-tax amounts from a TIRA.

He owns a Roth IRA and a Traditional IRA with no basis, then, this year, we contributed $6,500 into his TIRA and were unable to deduct our contribution.

We would like to move the pre-tax amounts only from the TIRA into his 403b, and convert the basis into his Roth. What is the correct procedure for doing this?

Thanks!
Dave



Submitted by Alan - IRA critic on Fri, 2014-05-02 19:58

He should roll the entire balance of his TIRA less 6,500 into the 403b. Once the plan has accepted his rollover he should convert the 6,500 remaining to a Roth IRA. He should report the non deductible contribution on Form 8606 Part I for the year the contribution is for. The conversion is also reported on Form 8606, but it will be a later year 8606 unless the contribution was for 2014. If he converts the 6500 first that is also OK, but if the 403b does not accept the rollover he would then have to recharacterize the conversion or pay taxes on it.

Submitted by David Mitchell on Fri, 2014-05-02 20:04

So, just to clarify, the IRS treats the first dollars to be rolled out of the TIRA to be the growth, not the basis, correct?

Submitted by Alan - IRA critic on Fri, 2014-05-02 22:03

Correct, it is a special exception to the pro rate rules. The pre tax IRA amounts are deemed rolled over before any after tax amounts (basis) when IRA money is rolled into a qualified plan. This rule is stated in the last paragraph on p 23 of Pub 590.

Submitted by David Mitchell on Fri, 2014-05-02 22:37

Thanks again Alan

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