IRA how to rollover to 401k and backdoor Roth
I am currently married and contributed to my traditional IRA as follows:
2015: $5,500 deductible
2016: $5,500 non-deductible
2017: $5,500 likely non-deductible
So I have a $5,500 basis from my 2016 taxes in my IRA (as reported on form 8606).
The other issue is that all the money is in a single traditional IRA as a mix of deductible and non-deductible money plus this year’s contribution. I contributed to the IRA earlier in 2017 without thinking it through, and I expect that it will be non-deductible this year again. I also have the IRA totally invested in an index fund, and let’s say that it lost some money and the IRA is now valued at $15,000.
I have a 401k that accepts IRA rollovers so I would be interested in moving my deductible pre-tax IRA portion so that I can then perform a clean backdoor Roth with my 2017 contribution without paying pro rata taxes (and in future years also). What is the best way to do all of this please? I was not sure how to deal with the IRA $5,500 basis that exists, amounts to transfer since the IRA has lost money, and to make sure that there would be no tax consequences in the 401k rollover or the backdoor Roth.
How do I calculate how much money to rollover from the ~$15,000 IRA to 401k? Since I can only rollover the deductible pre-tax portion (corresponding to the 2015 contribution), I was not sure how to calculate that portion exactly.
Can I do a backdoor Roth of $11,000 (5,500*2) this year since that includes the contributions amount of 2016 (assuming the basis ensures there is no tax?) and 2017, and rollover the remaining ~$4,000 (15,000-11,000) to the 401k?
I imagine I should do the 401k rollover and backdoor Roth in 2017, but what is the order I should do things? Is it better to sell assets to have them as cash for doing any of these transfers with exact amounts?
Thanks so much!
Permalink Submitted by Alan - IRA critic on Tue, 2017-11-14 23:55
Permalink Submitted by James Lee on Thu, 2017-11-16 14:55
Thank you for your reply, I appreciate it. I would like to do the rollover and backdoor Roth all during this year. So to make sure I do this correctly to avoid any tax consequences, I should do the following in this order:- Keep $11,000 cash in the TIRA (this is to include the $5,500 basis from last year’s non-deductible portion, and the $5,500 contribution from this year that is also non-deductible and would be added to the basis).- Rollover the remaining amount, ~$4,000, from the TIRA to the 401k. I will just make sure to keep the above $11,000 in the TIRA, and everything else can rollover.- Do a backdoor Roth conversion of $11,000 from the TIRA. So at the end of the year, I will have ~$4,000 in a 401k, $11,000 in a Roth IRA, and $0 in a TIRA. And my IRA basis will become $0. No taxes would be paid during the rollover or backdoor conversion. Then next year, I can contribute to my TIRA the max annual contribution. If that amount is non-deductible, then it becomes my new basis and I can just do the backdoor Roth conversion cleanly of that amount. There would be no taxes paid for this conversion either. Do I understand correctly please to make sure that things are done right and there would be no tax consequences of any of the transfers I am planning to make?
Permalink Submitted by Alan - IRA critic on Thu, 2017-11-16 17:02