Backdoor Roth & Pro Rata Rule
Working on complete a backdoor roth conversion for a husband and wife for both 2022 and 2023 contributions. Currently they have balances in pre-tax traditional IRA accounts – we are in the process of rolling these into their 401k accounts to avoid the pro-rata rule. Do their IRA balances need to be zero’d out prior to the backdoor roth conversion taking place in order for the pro-rate rule to be avoided?
Permalink Submitted by Alan - IRA critic on Wed, 2023-04-12 15:51
No, but it is recommended that the reverse rollovers to the 401k plans be completed first because if for any reason the rollover is not accepted by the plan, if the conversion is done first the taxpayer will be stuck with a mostly taxable conversion that can no longer be recharacterized.