Backdoor Roth

Submitted by michael steinebach on Fri, 2020-03-06 16:40

Question on a client.

Completes backdoor Roth every year. No IRA assets other than non-deductible IRA contribution and Roth IRA. Client closed her 401(k) at end of the year (2019) and rollover to Traditional IRA was processed in 2020.

Client just made contribution to Non-Deductible IRA for 2019 tax year. She would like to complete backdoor Roth. Because the client technically had 0 Traditional IRA assets and end of year 2019, can she complete backdoor roth without worrying about Pro Rata rule?



Submitted by Alan - IRA critic on Fri, 2020-03-06 18:53

  • No. Since the conversion of the 2019 ND contribution will be done in 2020, and the 401k rollover will be in her IRA balance on 12/31/2020, any conversion done in 2020 will be mostly taxable using the pro rate formula in Form 8606. Line 6 of the 8606 will include the rollover unless she rolls it back out to an accepting employer plan prior to the end of 2020.
  • If client had made the 2019 contribution in 2019 and converted it and if the 401k rollover was NOT in her IRA at year end 2019, the conversion would have been non taxable. Even if client received a 1099R from the 401k plan for 2019, if that rollover money was NOT yet in her IRA at year end and therefore not included on Form 5498 issued by the IRA custodian, then it would not have to be added into the 2019 year end balance.  However, that’s all moot since the conversion was not done in 2019.

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