Roth conversion and backdoor in the same year
Client has a small IRA from prior year over contribution from making to much money. They want to do a Back door this year 2023
Am i correct or not, that the 1,500 from the IRA prior year will need to be converted( paying taxes) prior to the backdoor contribution thus elimination of the pro rata issue? will the full 2023 backdoor amount be allowed after this, or will the 1,500 conversion reduce the 6,500( under 50) that they can put in for 2023.
Thanks
Steve
Permalink Submitted by Alan - IRA critic on Tue, 2023-03-28 18:37
Conversions do not reduce regular contributions. It sounds like a 2022 Roth contribution was made and 1500 of it was an excess Roth contribution that was recharacterized as a 2022 non deductible TIRA contribution. This 1500 or whatever the current value is can be converted along with the 6500 2023 ND TIRA contribution for a total conversion of around 8k. As long as there is no other TIRA balance at the end of 2023, up to 8k of a total conversion will be non taxable. Client will need to file a 2022 8606 to report the ND IRA contribution and a 2023 8606 to report the 2023 ND contribution of 6500 and to report the total conversion. If they do not have the funds for the 2023 conversion just yet, they could convert the 1500 now, make the 2023 contribution later and then convert that contribution. The conversions simply are added together on the 1099R from the cuistodian and the conversion year 8606 for the client.