Backdoor Roth mishap
Have been doing back-door Roth for clients for years. This year, we front loaded and did them beginning of the year in case BBB actually moved forward and we lost the window. Client has worked at same company for 18 years and had no plans of leaving. Got an amazing offer and left–now rolled over $600k 401k to an IRA. So when he does his taxes this year, his year end IRA value will be ~$600k so his $6k contribution/conversion will be 99% taxable….. Can’t recharacterize a conversion any longer, is there anything to do here? Or is it that we did the right thing for the right reasons but now it is going to be taxable and we don’t have the window to do it going forward and you are going to just have some basis in your IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2022-02-15 17:21
The easy out would be to roll all the pre tax dollars in his TIRAs to his new employer plan, if it accepts IRA rollovers. That would restore the conversions already done as tax free conversions. If the plan options and expenses are not all that good, then he would be better off just leaving things as is and paying the tax on the conversion, as 6000 more taxable income is pretty modest. And you are correct that he would have nearly 6000 of IRA basis going forward.