Back Door Roth
I have a client with a large IRA but she also has an individual 401k. She’s unable to fund her Roth due to income.
If she transfers her IRA into her individual 401k, does that exclude it from consideration when doing a back door Roth?
Can she specifiy that it is not? I thought once basis was in an IRA it could never be segregated. Thanks
There are some exceptions to the IRA “cream in the coffee” analogy. One of them is the rollover into a non IRA employer plan. Sec 408(d)(3)(H) states that “income from the contract” (meaning pre tax amounts) are treated as being rolled over prior to any basis in the contract (non deductible contributions). This verbiage is described in more understandable language in IRS Pub 590-A under ‘Rollovers”. Other exceptions of this type apply to HSA funding distributions and QCDs.
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-08 17:32
Yes. Only TIRA, SEP, and SIMPLE IRA balances effect taxation of conversions. 401k plan balances have no affect and are not reported on Form 8606, line 6. Client should be sure not to roll any IRA basis into the solo K as that is not allowed and creates an excess amount in the solo K that must be distributed back out with earnings.