Back Door Roth Confusion
So we have done a number of these but I’m running into a sticking point this year. In the past we have done them in April for the prior year and done the conversion in a different year. This year we are trying to do them all in one year. The facts:
1. Client had $20,000 Rollover IRA in 2021, that was rolled into his 401k in April of 2021.
2. Client contributed $6,000 to ND IRA in April 2021 for the 2020 tax year, was not converted as the intention was to wait until all IRAs were in the 401k plan.
Question.
1. If the client now does not have a RO IRA at the end of 2021 can he convert his $6,000 ND IRA to Roth during the same calendar year that he moved his RO IRA into hi 401k plan to position himself to be BD eligible? Basically when does the IRS look at the all IRAs for the calculation, during the year or at the end of the calendar year?
Permalink Submitted by Alan - IRA critic on Wed, 2021-11-10 19:27
Total non Roth IRA value is used on 12/31 of the conversion year to determine the taxable amount of the conversion. That figure should ideally be 0. If the ND TIRA contribution of 6000 has increased due to investment gains, a full conversion will be taxable to the extent the amount converted exceeds the 6000 of IRA basis. For that reason, the conversion is recommended to immediately follow the ND contribution assuming that all pre tax value has already been rolled to an accepting employer plan.