Backdoor Conversion to Roth from Trad IRA — taxes need to paid from converted funds?
Have established a Roth via a backdoor conversion from Trad IRA. There will be a substantial tax bill, due to the conversion. Do those taxes owed on the converted funds have to come from the converted funds? Or, can I just pay the taxes owed from other, non-IRA funds — and thus retain a larger balance of funds in the new Roth? Many thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2023-08-15 23:38
It is preferable to pay the taxes from your other funds so that the full distribution from your TIRA goes into the Roth. However, back door Roth conversions are typically non taxable or have a small taxable amount, but if you have pre tax IRA balances in traditional, SEP, or SIMPLE IRA accounts your back door conversion will be mostly taxable. The taxable amount of the conversion is calculated on Form 8606.
Permalink Submitted by Malcolm MacKenzie on Tue, 2023-08-15 23:55
Many thanks. Yes, I converted to Roth from a pre-tax IRA — and thus there will be high proportion of converted funds that I will pay taxes on. So, the payment of the taxes on the converted funds in the Roth from my other funds (non-IRA) will not be viewed as a contribution by the IRS?