Possible to wipe slate clean of IRA assets, and in the same year, execute a Backdoor Roth, and still avoid Prorata tax rule
I have a married couple business owner client whom I manage their business’ 401k for, along with, their IRA accounts as well. They would like to start funding Roth IRAs, however, they make too much money to do so straight up.
In order to avoid the Prorata tax rule, I rolled-in their IRA assets over to their 401k…thus wiping the slate clean of any IRA assets. I executed that roll-in this tax year (2022). That said, and my question is, can I have them fund Roth IRAs for this tax year (2022) via the Backdoor method, and still avoid the ProRata tax rule knowing that they rolled-in their IRA assets in the same year, or do I have to have them wait until the year of 2023, and have them fund their Backdoor Roths then?
Permalink Submitted by Alan - IRA critic on Thu, 2022-11-24 00:40
They can contribute for 2022 and convert those ND TIRA contributions tax free. This is the “back door Roth” procedure, and their TIRA balances should be 0 at the end of each year. I assume that their TIRA accounts had no basis from non deductible contributions when rolled into the 401k, since basis cannot be rolled into a qualified plan.