Back-Door Roth Question

Submitted by Justin Chibucos on Fri, 2023-02-24 16:36

Client has a traditional IRA (all pre-tax) which we are going to rollover into her 401K in order to facilitate back-door Roth. Question is, once we rollover the Trad IRA to the 401K (say next month) to zero it out and after we confirm the rollover was accepted and deposited into the 401K, can we then make a non-deductible contribution to that same Trad IRA (as we are able to re-open it) and then convert it over to Roth? Wondering on the timing of all this and the logistics of the after-tax funding to the same IRA during the same tax year as the rollover to the 401K and if there are any concerns with that.



Submitted by Alan - IRA critic on Fri, 2023-02-24 17:01

This is not a problem. The ND contribution can be funded either before or after the pre tax rollover to the 401k. What is critical is that there is a 0 balance in this TIRA at year end 2023. Actually, making the ND contribution after the rollover will prevent the serious error of rolling any IRA basis into the 401k, which is disallowed and correcting it is a major hassle.

Submitted by Justin Chibucos on Fri, 2023-02-24 17:06

Thank you, can can you confirm how this works logistically with tax reporting?

Submitted by Alan - IRA critic on Fri, 2023-02-24 18:25

  • Client will receive a 1099R coded G to report the IRA to 401k rollover. This is reported on lines 4a and 4b of Form 1040, and an explanatory statement regarding this rollover should be included with the return. Taxable line 4b will be 0 and “rollover” entered next to 4b.
  • The ND TIRA contribution must be reported on line 1 of Form 8606 for the year the contribution is for. Until 4/18 the contribution could be for 2022 (if 2022 contribution was not made previously), for 2023, or both.
  • The conversion of the non deductible contribution is reported on Form 8606 for the year in which the conversion is done. Completing the 8606 is simpler if contributions are made for the current year and therefore the contribution and conversion will be reported on the same 8606. If prior year contributions are made, a prior year 8606 is required to report the contribution, and the conversion will be on the following year’s 8606. Tax services are prone to making errors with the 8606 forms. 
  • In other words, if a 2022 ND contribution is being made this year, and the conversion is done this year, an 8606 (Parts I and II) is needed for both years and more lines are involved in Part I of the conversion year 8606 than if a current year contribution is made and converted.

   

Submitted by fairira on Sun, 2023-02-26 07:32

Alan,If one makes a ND TIRA contribution for 2022 now and Roth converts it before 4/18/23 and later this year makes a ND TIRA contribution for 2023 and immediately Roth converts it, a year from now when filing the Form 1040 for 2023 can all of this be included in a single Form 8606 or will 2 Form 8606’s be needed then?  Thank you for your help.

Submitted by Alan - IRA critic on Sun, 2023-02-26 16:48

The custodian will add up all conversions and report them on a single 1099R for 2023 and you would report the total on a single 8606 for 2023, which includes the 2023 ND contribution in Part I. Of course, if you convert from different TIRA accounts, you will receive a 1099R for each, but would still add them up on a single 8606.

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