Pro Rata Rule and Rollover
Could I do an IRA rollover from an old 401k into a traditional IRA. And open a separate, non deductible traditional IRA and make a contribution converting that to a Roth and avoid the Pro Rata rule because they are separate accounts? Having trouble finding an easy answer online.
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2021-04-20 20:02
No. Taxes on IRA distributions treat all IRA accounts as one combined account, so creating separate accounts will be of no benefit. If you plan on doing annual back door Roth contributions/conversions you need to keep your 401k balance in the old plan or roll it to your current 401k. That said, if the expenses of your old 401k (and present one) are much higher than what you are getting in an IRA, doing the back door Roth tax free might not be worth it.
If your current 401k plan has low enough expenses you could roll the old plan into it, or if the current plan also has much higher expenses than your IRA investments, if you are planning on changing jobs to a larger firm with a lower cost plan, you could make the ND contributions to your IRA, but wait until you can roll all the pre tax accounts into the new 401k plan. Once that is done, you can convert the total non deductible contributions (IRA basis reported on Form 8606) to a Roth tax free.
Permalink Submitted by Michael Jilling on Fri, 2021-04-23 15:02
A twist. If the only other IRA is a beneficiary IRA that is in the name of a trust (pass through descentents separate trust) inherited years ago where they are the beneficiay and that is the only IRA they have. Is that technically not in their name and they might be able to avoid? As always, thank you.