IRA and ROTH
I am due to get a closing pension payout in 2025 or 2026. It can be rolled over into my 401k or into a Trad. IRA. I have no current IRA assets and this has been by design as my wife and I do backdoor roths every year. We fund non deductible IRAs in Jan and immediately convert to ROTH.
My question is, if I do this in Jan, with no IRA assets at the time of converting and then the pension gets paid out to an IRA in 2025, would that retroactively cause me to recalculate the IRA taxes on the conversion or since i had no IRA assets at the time, the full conversion would be non taxable.
I do not want to lose the backdoor roth strategy, so the 401k may be my best option, but I am getting closer to retirement and using an investment that is complementary to my 401k assets has some appeal. ( not stocks and bonds)
Permalink Submitted by Alan - IRA critic on Mon, 2024-11-04 14:19
Rolling the pension into your IRA at anytime in 2025 will make any conversions you do in 2025 mostly taxable. The IRA value at the end of 2025 will determine the taxable amount on Form 8606 of any conversions. The fact that your IRA value was 0 earlier in the year is immaterial. Rolling the pension into the 401k would eliminate this issue.
Permalink Submitted by John Jawor on Mon, 2024-11-04 14:45
Thanks, Alan. That is what I figured. As always, appreciate the info.