Back Door Roth Conversions
If a high income person, who doesn’t qualify to make Roth IRA contributions, has a SIMPLE IRA (he is a real estate agent), does the SIMPLE IRA count towards the pro rata rule when converting a non deductible IRA to a Roth IRA? Is the solution to convert SIMPLE IRA to a Single K since that may (??) not be counted under the pro rata IRA conversion rules? Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2018-11-02 18:02
Yes to both questions. A SIMPLE IRA or SEP IRA year end balance is included in the Form 8606 calculation just as for a traditional IRA, so having such a balance will make a back door Roth conversion mostly taxable. Establishing a solo K instead of a SIMPLE IRA will solve this problem as qualified plan balances are not included on Form 8606. You can often contribute more with a solo K as well.