IRA to 401k to do a roth conversion
I am working on a case with a client with a small IRA. suggested to them ( they are 35 yrs old and make 300k total) to start roth conversions. fund their own IRAs then immediately convert to ROths.
at issue, he has the small IRA about 23k, I suggested he put that into his 401k at his current employer. I know how the conversion would be taxed if he left the IRA there and did partial roth conversion of the new contribution ( $5500).
question is, when would be able to not pay any taxes on the conversion? as soon as the IRA is in the 401k or would he have to wait until new tax year? 2019?
thanks in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2018-03-08 23:08
He could convert the 5500 now and it would be non taxable as long as the pre tax IRA balance is gone by year end. But now that conversions cannot be recharacterized any longer, it is recommended to complete the pre tax rollover to the 401k before converting the basis to eliminate the chance that the rollover is not accepted and client is stuck with a taxable conversion.