401K conversion and Backdoor Roth
I had to convert my 401K/Roth 401K to a Rollover IRA/Roth IRA earlier this year when the company plan terminated. Does that conversion impact my ability to fund a backdoor Roth for 2020?
Last week, I converted $35K from a Traditional IRA to a Roth.Just realized that I may now be over by $2K the 2020 MAGI $174K Joint Income threshold , triggering higher Medicare premiums.Can I return $2K to the Traditional IRA, either by year end, or when I file my 2020 tax return?
- You can no longer recharacterize Roth conversions. However, because IRMAA surcharges are determined using MAGI for the year 2 years before the surcharge year, your 2020 MAGI will determine your 2022 IRMAA, if any. By then there could be inflation adjustments to increase the 174k IRMAA threshold, and the 2021 MAGI is 176k. Since the joint MAGI is double the single figure, perhaps for 2022 there will be another increase to 178k. Therefore, if your 2020 MAGI is 176k, you may still avoid a surcharge come 2022.
- In addition, if your prior stimulus check paid in the spring was less than 2400, the conversion may erase the chance for your 2020 AGI to be low enough to receive the shortfall from the previous check, and may also affect the 2nd stimulus just signed, which is also based on 2020 AGI.
Permalink Submitted by Alan - IRA critic on Wed, 2020-12-23 23:26
Yes, the 401k pre tax direct rollover to a TIRA will result in a 2020 year end balance that will cause any back door Roth conversion to be taxable. The solution is to roll your pre tax TIRA balance to your current employer plan early next year if you have one that will accept incoming IRA rollovers. You can then still make a 2020 ND IRA contribution up to 4/15/2021 and convert it tax free in 2021. But you should complete the pre tax TIRA to employer plan rollover first.