Prorata Rules with a Mega Backdoor Roth
Client has IRA’s with no basis
They have a 401k which allows the mega back door roth. Do you need to include the IRA’s in determining the pro rata amount for the back door roth?
I have seen it discussed both ways but not specifically enough to tell if we have to use the the IRA’s.
Thanks
Permalink Submitted by Alan - IRA critic on Thu, 2021-05-27 03:10
No. The IRAs are not a factor because the 401k balance is rolled directly to the Roth IRA, and the funds are never deposited in a non Roth IRA. Form 8606 does not apply. However, any gains in the 401k after tax account will be taxable if the entire after tax account is rolled to a Roth IRA, or to the Roth 401k (an in plan Roth rollover ).