Quick Backdoor Roth Question

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Topic Author
Rolyatroba
Posts: 249
Joined: Mon Apr 22, 2013 1:14 pm

Quick Backdoor Roth Question

Post by Rolyatroba »

I have an IRA account at VG which is funded exclusively with after tax dollars. And yesterday, I just moved all funds from a Schwab IRA--the only other IRA I have--into a Schwab Individual 401k account (ostensibly to avoid the "pro-rata" rule).

With that in mind, I am wondering if I have to do the Roth transfer before the year end? I'll be adding $6,500 next year as well, and wanted to transfer that and the existing balance after the new year. The reason I'm reluctant to do right away is that I previously didn't know about the pro-rata rule, and did the Roth transfer earlier this year. I did have VG re-characterize that back into the standard IRA, so I'm thinking with that bookkeeping confusion, it might be better to wait until next year to transfer.

Please advise. Thanks.
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Quick Backdoor Roth Question

Post by Alan S. »

If your earlier conversion was just the 6500 you contributed, there was no need to recharacterize it if you were going to roll the Schwab IRA into the solo K. The solo K rollover would have eliminated pro rating of the Schwab balance even though you did the solo k rollover after the former conversion.

In any event, good thing you asked about the timing of your reconversion. Since you have recharacterized a 2014 conversion, you cannot reconvert the VG IRA until next year due to the reconversion waiting period. So if you will have the cash, you can make your 2015 non deductible contribution in January and then convert the entire VG IRA right away. You will have basis on Form 8606 of 13,000, so if your IRA is worth more than 13,000 when you convert, the difference will be taxable.
Last edited by Alan S. on Tue Nov 18, 2014 11:40 am, edited 1 time in total.
Topic Author
Rolyatroba
Posts: 249
Joined: Mon Apr 22, 2013 1:14 pm

Re: Quick Backdoor Roth Question

Post by Rolyatroba »

Ah ok. A little tax spanking for the mistake.

Thanks for the input.
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