Transfer to avoid pro rata??
Hello-
I have a client with a $250k ROTH (of which the past 5 years he has made full non deductible IRA contributions and converted those dollars over to the ROTH) and also $200k in a SIMPLE Plan. As it sits now, that SIMPLE IRA impacts the ROTH free distributions of the ROTH correct-per the pro rata rule??
If so, his company is moving to a 401k for 2024. If he transfers his SIMPLE into the 401k, would this avoid the pro rata rule for when he retires after age 59 1/2 and make the ROTH now fully tax free as the money would be in a 401k plan and not an IRA plan.
Thanks in advance.
Permalink Submitted by Alan - IRA critic on Mon, 2023-08-28 15:43
The SIMPLE IRA balance must be shown on Form 8606 and therefore is pro rated with any conversions to Roth, making them mostly taxable. It does not affect distributions from the Roth IRA, just conversions into the Roth IRA. If the SIMPLE IRA has met the 2 year holding period and is rolled into the 401k plan anytime in 2024, any back door Roth conversions done in 2024 will be non taxable.