Pro-Rata Rule for Backdoor Roth IRAs
Is there a “lookback” period for funds transferred from a Traditional IRA to a TSP to avoid including those funds in the pro-rata rule for backdoor Roth IRAs?
I understand that irahelp.com has noted the pro-rata rule here but it doesn’t mention if there is or isn’t a lookback period. https://irahelp.com/slottreport/backdoor-roth-iras-and-missed-rmds-todays-slott-report-mailbag
“You cannot “cherry pick” the after-tax dollars in your IRA and only convert those. If you have any pre-tax (deductible) dollars in any IRA, SEP or SIMPLE plan, those dollars must be considered under the pro-rata rule. Pro-rata dictates that any conversion will include a proportionate share of pre- and after-tax dollars. The only way a Roth conversion can be 100% tax-free is if you have no pre-tax dollars in any of your IRAs, SEP or SIMPLE plans.”
Permalink Submitted by William Tuttle on Tue, 2021-11-02 15:48
Refer to 2020 Form 8606 Line 6. “Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2020, plus any outstanding rollovers.” All that matters is the balance of all of the accounts indicated on 12/31 of any year you do a Roth conversion. So really, there is no look back, rather there is a look forward.
Permalink Submitted by Dave Swan on Tue, 2021-11-02 15:55
Thank you so much for the quick feedback, this is super helpful and greatly appreciated!
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-02 20:11
Now you just need to hope that you will be able to continue to convert after tax dollars to your Roth IRA after this year, since the pending tax bill would have eliminated this effective in January, 2022. Currently, the bill provisions are being heavily debated, so the end of the back door Roth might occur, or perhaps that provision will be stripped out of the final bill.