Roll Investment Growth of an Non-Deductible IRA
Hello, I have a client with a $105,000 non-deductible basis in an IRA. The value of the IRA is $350,000, which consists of growth and a $75,000 rollover over of a pre-tax 401k. Is it possible for them to roll the growth and pre-tax 401k into their new 401k, leaving the non-deductible basis, which then would be used for the back door roth? Thanks.
Permalink Submitted by Alan - IRA critic on Wed, 2021-09-08 15:57
If the 401k plan will accept a rollover of the pre tax TIRA value, the remaining IRA basis can be converted tax free, and the 105,000 will then generate Roth earnings rather than taxable IRA earnings. This will also set the stage for continued annual back door Roth conversions if needed. However, the investment options and expenses in the 401k should also be considered. If they are not, client may still want to do this rollover to enable the 105,000 conversion and should ask if in the following year the IRA rollover can be rolled back out to an IRA. In other words, if the 401k offerings are not attractive compared to the IRA, it may be worth it for a few months to convert the 105,000 but not worth it to do limited 6000 back door Roths year after year. Hopefully, client has correctly filed Form 8606 to record all those non deductible IRA contributions to establish that 105,000 basis.
Permalink Submitted by Jim White on Wed, 2021-09-08 16:15
Thanks. Yes, the 8606 as been filed dilegently.