Backdoor Roth Conversion with Nonductible Contributions before rolling over pretax 401k in the same year and the Pro-rata rule
Can I do a Backdoor Roth Conversion with nondeductible contribution only and complete it before having pretax IRA rollover from a 401k rollover a month later (in the same year) and after completing the Roth Conversion and not have it considered pro-rata, since at the date of conversion, there was no pretax dollars to consider?
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-20 16:46
No. The conversion taxes are based on the year end value of your non Roth IRA accounts along with any distributions including the conversion done earlier in the year. You need to hold off on the 401k rollover until the year following the conversion or it will make your conversion mostly taxable. You can verify this by reading Part I of Form 8606 which determines the taxable amount of a conversion if you made non deductible contributions. And if you plan to do annual back door Roth conversions without owing taxes, you will need to either keep the 401k where it is or roll it into your current employer plan if you have such a plan that accepts rollovers.
Permalink Submitted by Jim Vermeulen on Sun, 2022-03-20 16:48
Thank you.