Avoiding pro-rata IRA basis recovery problem
I start 2011 with $100,000 in TIRA (all pre-tax, no basis) and my income is too high to make direct Roth IRA contributions.
So I take the following steps:
I roll my $100K TIRA into my employer’s 401k plan (which obviously has to permit such rollovers).
Before 4/15/11 I make a $12,000 non-deductible TIRA contribution ($6,000 for 2010 and $6,000 for 2011) and immediately convert it to Roth (before any investment gain).
Have I successfully avoided recognizing any income on the conversion?
Does it make a difference if sometime later in 2011 I roll the $100K I rolled into the 401k plan back out to a TIRA?
Thanks
Permalink Submitted by Alan Spross on Tue, 2011-01-18 23:05
Yes, your conversion will be tax free, but ONLY if you do not roll any pre tax dollars back to the TIRA prior to 2012. If you roll the funds back this year, you will have reversed the benefit of rolling them into the 401k in the first place.
If you want to keep making these non deductible contributions and tax free conversions every year, you need to leave the pre tax IRA funds in the 401k.