Roth Conversion & Backdoor Roth in the same year | Ed Slott and Company, LLC

Roth Conversion & Backdoor Roth in the same year

Thank you for your help in advance.
Got a client who has an IRA (not being contributed) funded with a rollover money.
He's also planning to open a non-deductible IRA and recharacterize to Roth going forward.
If he converts his existing IRA to a Roth this year, can he also do the backdoor roth for this year?
OR can "Roth Recharacterization" be done only once/year?

  • A recharacterization is simply what it says. It is the changing of one type of IRA contribution (traditional or Roth) to the other type of IRA contribution (Roth or traditional) as if you only made the latter contribution
  • If your client is Roth MAGI limited from making a direct Roth contribution. Making a non-deductible traditonal IRA contribution and recharacterizing to a Roth IRA is still income limited.
  • The only way a Roth MAGI limited individual can effectively make Roth contributions. Is to make non-deductible traditional IRA contributions and do a Roth conversion (AKA Backdoor Roth).
  • However, Roth conversions in a given year are subject to pro-rata taxation of non-deductible basis and any pre-tax balances in all traditonal, SEP and SIMPLE IRA accounts on 12/31 of that year.
  • The only way a Backdoor Roth makes sense for your client is if there is no pre-tax IRA balances.
  • Doing a Roth conversion of these balances is one solution to the problem, but may involve substantial taxes. There is no limit to the number of Roth conversions done in a year.
  • Another option is to rollover any pre-tax IRA balances to a 401k, 403b, or 457b. Most, but not all plans accept IRA rollovers from current employees and very few accept them from separated employees (notable exception the TSP).

If we DO convert their existing traditional IRA to a Roth in 2019, sound like he/she can also convert their non-deductible ira to a roth as well? I was concerned about 1 roth conversion a year provison. No need to concern?Thank you!!


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