back door IRA – timing of 401(k) rollover important?
We rolled the client’s (all pre tax) SEP IRA to his 401(k) in March. He had no IRA so we established an IRA in April and contributions for both 2015 and 2016 were made. All are after tax given his qualified plan and very high income.
Our next step is to do a Roth conversion of the IRA balances. Any problem with doing it in 2016 or should we wait until 2017?
Many thanks as always for your great help.
Permalink Submitted by Alan - IRA critic on Fri, 2016-10-07 19:21
No problem doing the conversion this year. In fact, the conversion should usually be done shortly after the non deductible contributions are made so that any gains are in the Roth. If the contributions in client’s TIRA now have gains, the gains will be taxable income from the conversion. In addition, any more SEP IRA contributions or rollovers from qualified plans done before year end would result in IRA values on Form 8606 which would make the conversion mostly taxable.