Timing for Roth backdoor with IRA to TSP conversion
Here’s the scenario. Currently own regular IRA (call it “IRA A”) that contains no-cost basis (deductible contributions) and a TSP account. Currently maxing out TSP contributions. No other retirement accounts. My ultimate goal is to do a Roth back-door.
Let’s say this year I rollover the “IRA A” account into the TSP.
Next, as I understand it, I want to set up a new IRA (“IRA B”) that can be funded with $5,500 of cost-basis (non-deductible) funds and then convert that to Roth.
Question is: in order to avoid the pro-rata tax on the IRA B to Roth conversion, can the conversion of IRA B to Roth take place any time in 2018 as long as IRA A rolls over to TSP by Dec 31? Or should IRA A roll over first? Or should IRA B conversion take place in the next calendar year (2019)? Not sure if there are any timing issues to be aware of.
Anything else to consider with these IRA conversions?
Thanks!
Permalink Submitted by Alan - IRA critic on Sat, 2018-06-09 04:52
It is safer to complete the pre tax IRA balance to the TSP before making the non deductible contribution and converting, just in case something goes wrong and the rollover to the TSP is not completed. This is not a requirement, but it reduces the risk of doing a conversion then ends up being taxable because the rollover was not completed, since you can no longer recharacterize a conversion. And you do not need a second TIRA account. Most custodians allow a TIRA to continue with a 0 balance for up to a year, so you could complete the TSP rollover, then make the non deductible contribution to that same now empty IRA, then immediately convert the non deductible contribution to your Roth IRA.