Backdoor Roth for 2019 & Subsequent Conversion
Fact Pattern: client has $9,000 traditional IRA (all pre-tax). He wants to make a backdoor Roth contribution for 2019 yet in 2020 before tax filing deadline. Also in 2020, client would like to convert the $9,000 balance. Question is: what is the tax treatment on the conversions? Would some portion of the $6000 contribution be taxable because it’s attributed to 2019 and at that time there was a $9k pre-tax balance? Does the $6k get added retroactively to the balance to determine its tax treatment?
Permalink Submitted by Alan - IRA critic on Fri, 2020-01-03 19:52
Yes, the pro rata rules of Form 8606 will apply. Client makes a 6000 non deductible contribution in 2020 for 2019. Client now has 15,000 in the IRA with a basis of 6000. Any amount client chooses to convert in 2020 will be 60% taxable, therefore if client converts the entire 15000 balance, the taxable amount will be 9000. Even if the non deductible 6000 contribution is made to a separate IRA account and that account is converted, the pro rate rules apply. A 6000 conversion would have a taxable amount of 3600 (60% of the amount converted).