rolling IRAs back to Solo 401k – back door Roth
Taxpayer age 63 has IRA and SEP IRA (not contributing) and a Solo 401k (currently contributing to)
All accounts consist of pretax monies only.
Earns too much to make Roth IRA contribution.
Assuming Solo 401k plan administrator allows for rollovers into the plan – Can they roll back the IRA, SEP IRA into the Solo 401k and then do back door Roth conversion all in the same tax year and pay no income tax on the conversion?
Part 2 – If the IRA has after tax money in it as well as pretax – can they roll only the pretax monies into the solo 401k and leave the after tax money in the IRA and still achieve the same no tax on conversion goal?
Thanks as always
Howard
Permalink Submitted by Alan - IRA critic on Wed, 2023-05-17 23:26
Yes to both questions. If the IRA has any after tax basis, the basis cannot be rolled into the solo K, therefore the taxpayer need to know the correct amount of basis (reported on Form 8606) to avoid an error that is often difficult to correct. If all IRA pre tax dollars have been rolled into the solo K by year end 2023, any back door Roth conversion will be non taxable. It’s safer to complete the rollovers to the solo K before doing the conversion just in case something goes wrong, because a conversion that turns out to be taxable cannot be recharacterized.