Roth Conversion Question
I have a client who is wanting to make a non-deductible contribution to a Traditional IRA and the immediately Convert to a ROTH.
The problem is he has an IRA he inherited from a deceased spouse which is now in his name. Therefore, he would get hit with the pro-rata calculation.
My question is he still works. If he were to roll IRA money into his company plan, could he then make the non-deductible contribution to the IRA and then convert to the ROTH IRA and avoid the pro- rata rule?
Permalink Submitted by Alan - IRA critic on Thu, 2014-10-02 21:48
Yes. He would have to roll his entire IRA balance less his basis to the employer plan. The rollover must be completed before the end of the year of the conversion. The rollover can be done either before or after the conversion. Therefore, he could make the contribution and convert it right away and still have until year end to complete the rollover of the rest of his IRA to the employer plan. Or if he is not sure that the employer plan will accept an IRA rollover (or perhaps will not accept it unless it is a conduit or rollover IRA), then he should complete the rollover first before making the contribution and converting it.
Permalink Submitted by Jay Fong on Thu, 2014-10-02 23:03
He would have to roll his entire IRA balance less his basis to the employer plan. The IRA proceeds come from his deceased wife’s company 401K. So, there is not any basis in my opinion, correct?Or am I missing something?
Permalink Submitted by Alan - IRA critic on Fri, 2014-10-03 02:52
Probably no basis in his IRA, but since 2002 any after tax contributions in her 401k could have been rolled over to her IRA before she passed, so basis in that IRA is possible, but very unlikely.