Using a 401K to do Roth conversions of non-deductible Traditional IRA contributions to minimize tax on prorated earnings
I was hoping for a confirmation on whether this would work within the IRS rules.
As of 3/1/22 if I am over 59 1/2 old and just have only two Traditional IRAs IRA-A with $100K and IRA-B with $80K (consisting of $60K pre-tax + earnings and $20K after-tax contributions), Will I be able to do this 4 step process to convert the $20K into a Roth IRA and pay minimal or no taxes in the process and not violating any rules?
Step 1: In 2022 – Partially transfer $60K from IRA-B to IRA-A transfer to keep just the $20K in IRA-B.
Step 2: In 2022 – Transfer entire IRA-A (Roughly $160K) to my Employer 401K as a Rollover IRA self certifying there are no “after-tax funds” in that amount
Step 3: in 2022 – Wait till the Dec 31, 2022 – To show all IRA Balances total only $20K + any additional earnings after Step 2 in IRA-B and $0 in IRA-A
Step 4: In 2023 – Do a Roth conversion of $20K from IRA-B and pay any taxes on the earnings if any on the $20K or transfer the earnings on the $20K to a new pre-tax IRA (IRA-C).
Thank you,
Richard
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-27 01:59
It will work, but you can do this much more quickly and efficiently. Step 1 is OK. Step 2 is OK providing your 401k will accept the rollover. You may not need to certify the lack of IRA basis. Step 3 – there is no need to wait. As soon as your 401k has accepted your rollover you can convert the remaining 20k of IRA basis to Roth tax free in 2022. If you convert right away there should be little of no earnings added to the 20k of basis. The key step is Step 2.
Permalink Submitted by Richard Rodrigues on Sun, 2022-03-27 21:09
Thank you Alan, I may have gotten myself confused with the Dec 31 date which applies to RMD calculations