Back door Roth IRA
Planning on contributing to a traditional IRA and then accomplishing a ROTH conversion about 30 days later. For tax purposes does a rollover-IRA (prior company 401k) count toward the IRA aggregation rule. If so, that means the entire amount minus post tax contributions is taxable. Thanks
Permalink Submitted by Alan - IRA critic on Sat, 2017-10-21 21:37
The rollover IRA balance must be included in the total non Roth IRA balance in calculating the taxable amount of the conversion on Form 8606. The result will be that the conversion will be mostly taxable. One way to prevent this is to roll the pre tax balance of the IRA to an accepting employer plan before the end of the year. That leaves only the non deductible contribution balance in the TIRA, which can be converted tax free to a Roth IRA. This strategy is used routinely for back door Roths. Of course, if your employer plan (usually a 401k) has poor investment options and high expenses, you probably would not want to roll your TIRA into that plan.
Permalink Submitted by Chuck Hagan on Sun, 2017-10-22 13:45
You confirmed what i hope wasn’t going to be true. Thanks