Roth Conversion post Rollover INTO 401(k)
James has a Traditional IRA with $250,000 and $50,000 in basis.
His wife, Jill has a Traditional IRA valued at $50,000.
On 11/15/18, James transfers $200,000 of IRA (non-basis) funds to his employer’s 401(K) – it does not allow basis.
On 12/1/18, James converts his $50,000 IRA (all basis) to a Roth IRA
On 1/15/19, James completes an in-service withdraw of $1m out of his 401(k) into a Traditional IRA.
James ends up with a $50,000 Roth IRA and a $1m IRA and does not owe any tax on the conversion.
Is this sound thinking and legal? Am I missing something?
Permalink Submitted by Alan - IRA critic on Tue, 2018-10-23 16:40
Perfectly fine. The conversion is non taxable because the 401k rollover to TIRA was after 12/31/2018. If it is done in 2018 it will cause the conversion to be mostly taxable. This result is produced on Form 8606 as a result of a 0 TIRA balance on 12/31/2018.