New Backdoor Roth with Existing Roth IRA Account
64 year- old working taxpayer has two existing accounts. One Roth IRA which was opened 15 years earlier by contribution. Second is a Rollover IRA which taxpayer has used to periodically convert funds to Roth.
The Rollover IRA is close to zero after the many conversions described above.
Taxpayer makes too much to contribute to Roth. So he elects to start backdoor Roth steps. He opens a new non-deductible TIRA with 5K . After a few months the TIRA is now worth 6K.
If he wants to complete backdoor process: 1) Can he convert to existing Roth account or must he start a new Roth?, AND 2) How much of the converted 6K is taxable?
Thank you and Happy New Year.
Permalink Submitted by Alan - IRA critic on Tue, 2021-01-05 14:32
There is no need to open a new Roth account. The conversion can be made to the current qualified Roth account and because his Roth is qualified, there is no need for him to track the amount of his regular or conversion contributions any longer.
The taxable amount for the conversion will be 1k plus an additional amount due to pro rating the rollover IRA balance on Form 8606, since all TIRA accounts must be shown on line 6 of Form 8606. For example, if the balance of the rollover IRA is 14k, the conversion of any amount will be 75% taxable. If the rollover IRA is smaller, he might just convert that at the same time. Since he can compute the taxable amount of the conversion up front, he can control the amount he wants to convert. In this example, 75% applies no matter how much he converts, so if he converts 4k, 3k will be taxable.
If he plans to retire soon, he could postpone the conversion until the retirement year in which he will be in a lower bracket, even lower if he has a year before SS benefits begin.