When to “empty out” the Rollover IRA for future NQ IRA contribs and back door conversion
My client has $2.1 mil in his IRA. His employer (public university) will accept a rollover in to the plan from this IRA. The purpose of this transaction is to be able to do NQ future contributions and back door them into his Roth. If we get the funds moved before year end, could we, in January, contribute the $8k to a NQ IRA as a 2024 contribution, and subsequently convert it?
Or could this throw up a red flag to the IRS and they could ask my client to prove that the traditional IRA balance was zero at the time of his NQ contribution? He doesn’t want this distraction as he is a high level official at the University.
Seems that the form 5498 for 2024 would show the account being worth zero at year end….. and that might be all the proof needed.
Permalink Submitted by David Bregger on Thu, 2024-12-12 11:37
Thanks Alan! Thats a great help. Its what I thought was true. Do you think it opens a question for the IRS to ask my client to prove that they cleared it out during the year before making the ND contribution? They don’t care as much about back Door Roth as much I do….but would be angry if this throws up a red flag, causing the IRS to question it.