IRA Conversion
James has a Traditional IRA with $250,000 and $50,000 in basis.
On 10/15/18, James transfers $200,000 of IRA (non-basis) funds to his employer’s 401(K) – it does not allow basis.
On 11/1/18, James converts his $50,000 IRA (all basis) to a Roth IRA
On 1/15/19, James does an in-service withdraw of $1m out of his 401(k) into an IRA.
James ends up with a $50,000 Roth IRA and a $1m IRA and does not owe any tax on the conversion.
Is this sound thinking and legal? Am I missing something?
Permalink Submitted by Alan - IRA critic on Mon, 2018-10-01 16:51
Yes, the conversion of 50k remains 100% tax free because there was no TIRA balance on 12/31/2018 showing on line 6 of Form 8606. Form 8606 reports the conversion and would indicate that the 50k is non taxable, but had the 401k rollover been done in 2018, then the conversion would have been mostly taxable.