Backdoor Roth Conversion
Hi,
I have a question regarding the backdoor Roth conversion. Here are the facts:
The client made nondeductible contributions to an IRA account many years ago, which currently has a balance of approximately $50,000. He also has other deductible IRA accounts with a combined balance of $1.0 million.
Now, he wants to convert the account containing the non-deductible IRA contributions. My understanding is that he will be affected by the pro-rata rule. Is this correct?
Thank you.
Eleonora
Permalink Submitted by Alan - IRA critic on Sun, 2025-02-02 18:43
Yes, the value of all non Roth IRAs must be considered when the taxable amount of any conversion is calculated on Form 8606. The total amount of ND contributions made is also tracked on Form 8606 with each ND contribution. Therefore, with a total IRA balance of 1mm, if 50,000 of total ND contributions were part of that total, each conversion would still be 95% taxable.
Permalink Submitted by Mark Flanagan on Sun, 2025-02-02 19:12
Suppose client has an IRA basis of $50,000 and a FMV of $55,000
Client converts $55,000 to Roth and now has nothing remaining in a traditional IRA
Client then rolls over $1,000,000 from 401k to IRA in same year
How much of the $50,000 basis is allowed this year? All of it or is it pro-rated?
Permalink Submitted by Alan - IRA critic on Sun, 2025-02-02 19:25
Pro rated. The 401k rollover should wait until the year after the conversion to avoid this. Since there will be a year end IRA value of 1mm after the 401k rollover, this conversion will be mostly taxable (95.26%).