Rollover 401k AFTER Roth conversion rules?

Submitted by David Briegs on Mon, 2010-01-11 16:18

Let’s say a client has a $100k in Traditional IRAs with a $40k basis from after-tax contributions. I know he can do a Roth conversion and $40k (40%) would not be taxable upon conversion. Now, he also has a $100k 401k that he wants to rollover but NOT convert. If he does this AFTER the conversion (but in the same tax year), does that still leave the tax-free % of what was converted at 40%? Or do they look at how much you ended the year with in IRAs for purposes of the pro-rata rule?

Any help appreciated.

Thanks!

Dave



Submitted by Alan Spross on Mon, 2010-01-11 16:45

The year end total IRA value is used, adjusted for in year distributions. Therefore, the 401k rollover should be postponed until the year after the conversion so that 40% of the conversion will be tax free instead of 20%.



Submitted by David Briegs on Mon, 2010-01-11 18:23

Thank you!



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