So, I know that a CSRS employee can fund a VCP account and upon retirement direct that VCP account to a Roth IRA. Assuming the employee had never contributed to VCP and is within a year of retiring, they could fund the VCP with 10% of lifetime earnings and almost immediately take it to a Roth IRA, effectively a MASSIVE back-door Roth. My question is, assuming the client has TIRA accounts with no basis, is the transfer of the VCP to the Roth IRA subject to the pro-rata rule on distributions? Let’s say it’s $200k put into VCP, $205k comes out to Roth IRA. The client has $50k in TIRA with no basis. Is the transfer to the Roth IRA only taxable on the $5k in earnings, or does the $50k TIRA come into the equation?
-m