Backdoor Roth order of operations

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Simbilis
Posts: 55
Joined: Sat Nov 03, 2012 12:29 pm

Backdoor Roth order of operations

Post by Simbilis » Sun Mar 12, 2017 9:40 pm

I'm getting ready to do a backdoor Roth conversion on my rollover IRA with a mix of pre-tax funds and nondeductible contributions. I plan to roll the pre-tax money into a 401k, and then convert the remaining post-tax contributions to an existing Roth IRA.

It seems as if the easiest thing would be to do the Roth conversion first, and then the 401k rollover. Does the IRS allow that, or would doing the conversion first cause the pro-rata rule to take effect?

I'm going to have this conversation with my Vanguard rep too, but I'd like to be informed going in.

Thanks,

Sim

mhalley
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Joined: Tue Nov 20, 2007 6:02 am

Re: Backdoor Roth order of operations

Post by mhalley » Sun Mar 12, 2017 9:56 pm

I believe the pro rata rule comes ito play with money that is in the Ira on dec 31.
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lazylarry
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Re: Backdoor Roth order of operations

Post by lazylarry » Sun Mar 12, 2017 10:41 pm

It seems as if the easiest thing would be to do the Roth conversion first, and then the 401k rollover. Does the IRS allow that, or would doing the conversion first cause the pro-rata rule to take effect?
-IRS just does taxes, thus they don't care. You can rollover Roth IRA into Roth 401k,but you have to ask your plan manager. This probably is not a good idea however.
-Yes the pro-rata rule would be invoked precisely in your circumstance. You can not solely convert the nondeductible contribution. Thus, you must roll over the pre-tax contributions to your 401k, and then convert your contributions to Roth IRA as desired.
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Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Backdoor Roth order of operations

Post by Spirit Rider » Sun Mar 12, 2017 11:54 pm

In case the answers were not clear, the order does not matter as long as they both occur on or before 12/31.

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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Backdoor Roth order of operations

Post by Duckie » Mon Mar 13, 2017 7:39 pm

Simbilis wrote:It seems as if the easiest thing would be to do the Roth conversion first, and then the 401k rollover. Does the IRS allow that, or would doing the conversion first cause the pro-rata rule to take effect?
The IRS doesn't care one way or the other which is done first. As long as you're sure the 401k will take the Rollover IRA, then converting the non-deductible basis first is easier because you know exactly how much to the penny to convert.

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