ROTH Conversion (Back Door)

Submitted by Ron Lee on Mon, 2023-02-06 18:56

If you have been making back door ROTH conversions for many years but not using the pro-rata rule even though it applied are there any negative consequences such as an excise tax etc.?

What happened is that for many years someone was self-preparing their tax return and just treating the conversions as a tax free rollover although they had pretax IRA accounts and the pro-rata rule should have applied.

Can they just go back and amend the three prior year open years to correct at least these years and move forward?

I would hate to tell them to amend and get hit with some unexpected excise tax or something.

Balance in the ROTH is now around $250k.

Thank you



Submitted by David Mertz on Mon, 2023-02-06 19:19

  • For open tax years they can amend to make the corrections.
  • For closed tax years they cannot now take a contrary position that indicates that they did not use the basis that they originally claimed and used to reduce the taxable amount of the conversions.  Doing so would give them double credit for the basis.

Submitted by Ron Lee on Mon, 2023-02-06 19:45

Thank you – this was what I was going to recommend. However, without really knowing everything about IRAs I am worried about getting hit with the 6% excise tax or something else. Any concerns outside of just paying the tax and associated late payment penalty and interest?

Submitted by Alan - IRA critic on Mon, 2023-02-06 22:53

There is no excess contribution and therefore no 6% excise tax. For any open year amended returns, you would owe tax and an underpayment penalty, but the excessive basis used those 3 years would be restored and you would be able to use that basis in the future. But not basis used in any closed year. 

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