401k Maxed plus IRA contributions
Self employed client maxed out 401k (his and company limits) and then contributed to non-deductible IRA later converted to Roth.
What does he need to do?
Self employed client maxed out 401k (his and company limits) and then contributed to non-deductible IRA later converted to Roth.
What does he need to do?
Permalink Submitted by Alan - IRA critic on Thu, 2020-07-02 16:40
He reports the ND contribution on Form 8606. He also reports the conversion in the conversion year and files an 8606 for that year to report the conversion. To the extent of total ND contributions, the conversion will be non taxable. But all owned TIRA values are counted in determining the taxable amount, so if he rolled over a 94000 401k to an IRA and made a 6000 ND contribution, the 6000 conversion would be 94% taxable under the pro rate rules. What client proposes is a back door Roth contribution which gets him around the regular Roth contribution income limit, but for this to work, all his non Roth IRAs should not hold any pre tax amounts or very small amounts. If nothing in these IRAs except the 6000 contribution, and there are gains which bring the account to 7000, a 7000 conversion will have a 1000 taxable amount from the gains.