Combining Backdoor and Traditional Roth IRAs
I’m meeting with some prospective clients soon. One spouse owns a large 401k which he will continue to contribute to until he retires in 2 years. Additionally, each spouse owns a Backdoor Roth IRA at Pershing and a traditional Roth IRA at Lincoln Financial. All of the Roth IRAs were recently invested in C shares by their current advisers. The prospective clients want me to manage all of their Roth investments for them. My plan is to transfer in-kind the investments of each spouse’s Pershing Backdoor Roth IRA and Lincoln traditional Roth IRA into a single TD Ameritrade traditional Roth IRA. I will then reinvest the C shares after the CDSC period has passed.
Does anyone happen to know of any drawbacks or rules against combining a Backdoor Roth IRA and a traditional Roth IRA into a single Roth IRA? Any insight ya’ll can provide would be greatly appreciated!
Permalink Submitted by Alan - IRA critic on Wed, 2018-08-22 16:47
There is no reason not to combine the Roth accounts. Taxation of any Roth distributions treats all Roth accounts as one combined account, therefore client needs to keep track of their total Roth IRA basis in case they ever take a distribution before their Roth is qualified. This is not any more difficult with a single account than with multiple accounts. Also, now that Roth conversions can no longer be recharacterized, there is no reason to keep separate accounts just for the purposes of making the earnings math simpler for recharacterization planning.