Back door vs. Roth Conversion

Submitted by Tracy Hawbaker on Thu, 2023-05-25 17:46

We have a client that has an existing Traditional IRA and a very small Roth IRA. He is a working physician who contributes to his 401(k) to the max. He asked about a backdoor Roth IRA as he doesn’t meet the criteria to make a Roth IRA contribution. Would it make sense to work with his CPA to convert the Traditional IRA to the Roth over time or should we/can we also work on the backdoor Roth IRA? I am not overly familiar with the backdoor concept.



Submitted by Alan - IRA critic on Thu, 2023-05-25 20:33

  • The usual solution to the taxable conversions that the TIRA balance would cause is to roll the TIRA into the current 401k, presuming that the 401k plan will accept IRA rollovers. For example, if this “reverse rollover” to the 401k is completed anytime before year end, any back door Roth conversions done this year will be non taxable. Note that if the TIRA includes any basis from non deductible contributions, because TIRA basis is not eligible to be rolled to a 401k the client needs to be sure not to include any basis (from prior or current ND contributions) in the 401k rollover.
  • Of course, if the TIRA value is very small in relation to the 401k, it could also make sense to convert it instead of rolling it over to the 401k. It all depends on how much additional taxable income such conversions would cause. Conversions of the TIRA could be split over a few years as well to avoid a spike in taxable income. 

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