But doesn't this go back to earlier posts in this thread by others who said that such a practice still looks, walks, and quacks like a duck? If you're doing this over and over and over, it's a duck, and your intentions are clear. The IRC does not prescribe a time limit that one must wait before a conversion may be done. I don't see how waiting a year or more would in any manner obviate or even mitigate the applicability of the step transaction doctrine if such is, in fact, applicable here (and accepting, for the sake of argument, that it is). You've established a pattern or practice; your intent is clear. Therefore, it doesn't matter how long you wait prior to conversion.alfaspider wrote:fund wrote:
My feeling is that Roth conversions are explicitly permitted and therefore lawful.
I don't think the ability to do a Roth Conversion for those who can't contribute directly has ever really been in doubt after the 2010 income limit elimination. Where there is some doubt is the practice of making the IRA contribution, converting the Roth the next day, and doing that every single year. The only real question is whether it's worth waiting a year or two and paying the "toll charge."
The fact that certain taxpayers may make conversions tax-free as a result of the 2010 legislative change is immaterial in my estimation. That's a by-product of the law, and lots of laws have lots of by-products; are those by-products as a result all illegal? Let me explain further: the legislative change did not say that a taxpayer may do Roth conversions only if that taxpayer is subject to the pro-rata rule in an amount, for example, equal to or greater than 50 percent. And it didn't say that a taxpayer may do Roth conversions only if that taxpayer is subject in any amount to the pro-rata rule. Rather, the law is entirely silent on the matter. If a taxpayer has to pay tax on one percent of his or her conversions due to the pro-rata rule, that's clearly ok. If the taxpayer has to pay tax on 95 percent of his or her conversions due to the pro-rata rule, that's also clearly ok. So where do we draw the line? One percent and you're good to go, but zero percent no?
Editing to add: and if the pro-rata rule subjects only one percent of your conversion to taxation, isn't, then, the majority - the vast, overwhelming majority - of your conversion "excess"? So at what percentage applicability of the pro-rata rule is it ok to do backdoor Roths?
More fascinating than waiting any amount of time or whether the pro-rata rule is applicable if we're seeking to justify the legislative change solely in terms of allowing taxpayers with previously existing IRAs to make Roth conversions is the concept, expressed by an earlier poster, of putting the money into, say, an S&P 500 index fund rather than a MM fund so there is some gain or loss that can be shown prior to conversion.