Back Door Roth IRA Pro Rata Rule
Client processed a back door Roth IRA in 2023 and as of this writing has no Trad IRA value. However, she plans to rollover her former employer 401k plan by year end before it moves to another 401k platform. Blackout period could be 3 weeks so wants to process before Jan 1, 2024. Check may be dated 12/27/23 but probably wont receive check until early January 2024. In determining Trad IRA assets for 2023 would this rollover create issues for 2023 Back Door conversion since she requested rollover in 2023 but Rollover IRA wasn’t funded with it until Jan 2024?
Permalink Submitted by Alan - IRA critic on Thu, 2023-12-07 22:52
As long as the direct rollover check is not deposited into the IRA account before year end, it is not included on line 6 of Form 8606, and will not affect the taxable portion of the conversion. This is true even though client may get a 1099R from the 401k plan for the direct rollover distribution. The IRA custodian should issue a 5498 for the rollover contribution for the year in which they actually receive it. In other words, an “outstanding rollover” to be included on line 6 of Form 8606 is limited to funds moving between IRA accounts, not between IRAs and qualified plans.