Backdoor Roth Question
Hello,
Can you please help me out with the following. Individual has pre-tax funds that went from SEP IRA to IRA a number of years ago. They have been told by their accountant that they can now roll the IRA back into their 401(k). Then the individual and their spouse can do $7000 per year contributions into IRA for each of them and then the next day roll them into a Roth IRA no taxes…but the Individual first has to move their IRA into their 401(k). Both spouses are active participants in a qualified retirement plan. Thank you for your help in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2022-08-04 18:57
Yes, this is an allowed series of transactions. They would each report a non deductible TIRA contribution on Form 8606 for each spouse, and the conversions would also be reported on the same 8606 if the conversion was done in the same year as the contributions were reported for. The conversions would be tax free. I assume from your post that only one spouse has a current pre tax IRA. If the other spouse also had one, they would have to also roll it into their own employer plan for the back door to work for each spouse.
Permalink Submitted by Brian Smith on Thu, 2022-08-04 20:46
Hi Alan thank you for your response, Both spouses have IRA funds. So it looks like both would need to Roll them into their employer sponsored plans for the backdoor Roth. Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2022-08-04 21:24
Yes, and both would need to have an employer plan that accepts IRA rollovers. If they both cannot roll the pre tax IRA to an employer plan, the spouse that can is still able to do the backdoor Roth.