Can back-door Roth contribution be undone?
Clients each contributed $13,000 to their IRA’s early in 2023, $6,500 for 2022 and $6,500 for 2023, and then immediately converted to a Roth. The IRA account was $0 after the transfer, BUT they also each have another IRA account from funds rolled over from previous employer 401K plans. My understanding is that the conversion is not completely tax-free because of the pro-rata rule. Is there a way to undo this action or is too late and they are stuck with the taxable consequences?
Permalink Submitted by PaulC on Fri, 2024-03-22 16:27
Your understanding of the implications of having a balance in another Traditional IRA is correct. The conversions would be partially taxable due to the pro-rata rule. Roth conversions can no longer be undone (recharacterized), since 2018.
Permalink Submitted by Laura Coen on Fri, 2024-03-22 21:21
Thank you for confirming. Now I have to break the news to the client….