roth conversion timing question
I have a client who wants to convert an IRA to a ROTH. But he also wants to transfer money from his Tiaa-CREF retirement account into a rollover ira. He has no iras currently other than the one he wants to convert, but if he transfers funds from his company plan to another ira it will foul up the taxes on his roth conversion due to the pro-rata rule. If he does his conversion first and then waits to the next tax year to move funds from his company plan he will be fine. But can he move the company plan funds to an IRA after the conversion in the same tax year without affecting the taxes on gis conversion, or does he indeed have to wait on the rollver for another tax year?
Permalink Submitted by Alan - IRA critic on Thu, 2015-04-16 02:10
You did not indicate that he has any basis in the IRA he plans to convert, but the question seems to assume that he has. If so, he must hold off on the rollover until next year because the IRA balance on 12/31 determines the taxable amount of a conversion. Converting before the rollover and doing the rollover later in the same year will cause pro rating to occur on Form 8606 due to the IRA 12/31 value.
Permalink Submitted by Ronald Birnbaum on Thu, 2015-04-16 02:15
Yes, I found the answer in a posting here from 2010. Same answer now! But his company plan at TIAA-CREF I believe is a 403B plan. IF I rollover some of that (there is a large balance there) to a 403B and keep it a 403B and not an IRA, would it still count for the pro-rata rule? So, the question is: are 403b plan balances counted with IRA assets when doing a roth converstion for the pro-rata rule?
Permalink Submitted by Alan - IRA critic on Thu, 2015-04-16 02:44
403b assets do not count, only IRA assets composed of traditional, SEP, or SIMPLE IRA accounts. As long as those assets are not in one of these IRA accounts, they are not considered in the calculation. They are not entered on the 8606 anywhere.