TTEE-to-TTEE transfer from solo 401k to IRA okay for client who already did back door Roth using same IRA?
Hi all,
Client is 72, turns 73 in 2025. Has all retirement money either in solo 401k or Roth IRA. Client is still working. Did a backdoor Roth conversion this year using his existing IRA, which remains open and currently has a zero balance. All accounts are at Charles Schwab.
He’d like to transfer the majority of his solo 401k to his IRA in 2024 so he can offset the majority of his 2025 RMD with a charitable gift annuity of $50,000 in 2025. Will the fact that he did a backdoor Roth conversion in 2024 create a penalty for him if he then transfers the majority balance in his solo 401k to his IRA in 2024?
Or should he wait until 2025 and then transfer the majority of his solo 401k to the IRA and use the GCA strategy for his 2026 RMD? But if he does that, would he be required to first take his RMD from the solo 401k before transferring the funds to his IRA?
Or is this all just not a good idea?
TIA for your help.
Permalink Submitted by Alan - IRA critic on Tue, 2024-09-03 10:52
The back door Roth conversion will become mostly taxable if the solo K is rolled into the TIRA this year.
In addition, if the solo K rollover is done after 2024, the annual RMD for the solo K will have to be distributed prior to the rollover. There will not be a TIRA RMD for a year until the prior year end had a TIRA balance.
Since the CGA and RMD will apparently be much larger than the assumed 8000 conversion and the conversion has been done, it will make more sense to do the solo K rollover this year and pay the tax on most of the conversion. The CGA can then be done in 2025 to offset some of the 2025 IRA RMD. Note that the CGA will be paying out ordinary income each year which will add to taxable income in future years. Also, note that even if client will continue to work and add to the soloK, it will also become subject to RMDs in 2025 whether rolled over or not.
Finally, if the 2024 IRA contribution was non deductible and the rollover is done this year, most of that IRA contribution that has been converted in the taxable conversion will leave an IRA basis in the IRA to be recovered gradually over the years on Form 8606.
Permalink Submitted by Delia Fernandez on Tue, 2024-09-03 20:19
Thanks so much, Alan, for your quick and detailed reply. I really appreciate it.
Delia Fernandez