Backdoor roth conversion followed by 401k rollover
client has no TIRAs
client makes a non deductible contr to a TIRA in March, then immedicately does a backdoor roth conversion on behalf of prior year
-in June, client rolls $1m 401k to TIRA consisting of 100% pretax dollars
Is any of the backdoor roth conversion taxable?
why or why not?
Permalink Submitted by Alan - IRA critic on Thu, 2020-08-20 21:52
The taxable portion of a conversion done in 2020 is determined by the ratio of pre tax TIRA value on 12/31/2020 to IRA basis. Addition of the 1m of pre tax value will make the conversion fully taxable. Only solution is to roll the entire TIRA less 6000 into an accepting plan which is usually limited to the plan of the current employer. The conversion cannot be recharacterized. This rollover perhaps should have been delayed until Jan, 2021 however if the old plan expenses and options were not ideal, the rollover might still be beneficial even though it destroys future back door Roth options.