backdoor roth conversion

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PR_PR
Posts: 1
Joined: Tue Jan 12, 2021 8:08 pm

backdoor roth conversion

Post by PR_PR »

Hi, I had a IRA account with some balance in tax year 2020. I initiated a rollover from IRA to 401k in December, 2020. Currently the rollover is in-progress but my IRA account is already closed and I have no outstanding balance in any IRA accounts. So I want to know if I can contribute to a new tIRA account and convert it to Roth for tax year 2020 without running into any pro-rata issues?

Thanks,
PR
Silk McCue
Posts: 4867
Joined: Thu Feb 25, 2016 7:11 pm

Re: backdoor roth conversion

Post by Silk McCue »

Welcome to Bogleheads!

The only IRA balance that matters when applying the pro rata rule is at the end of the year in which the Backdoor Roth is performed. That will be December 31, 2021.

Cheers
placeholder
Posts: 4226
Joined: Tue Aug 06, 2013 12:43 pm

Re: backdoor roth conversion

Post by placeholder »

You can't do a conversion for a prior year only the current one.
Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: backdoor roth conversion

Post by Silk McCue »

placeholder wrote: Tue Jan 12, 2021 9:11 pm You can't do a conversion for a prior year only the current one.
To be clear, they can do a 2020 Backdoor Roth until April 15th 2021.

Cheers
placeholder
Posts: 4226
Joined: Tue Aug 06, 2013 12:43 pm

Re: backdoor roth conversion

Post by placeholder »

Silk McCue wrote: Tue Jan 12, 2021 9:20 pm
placeholder wrote: Tue Jan 12, 2021 9:11 pm You can't do a conversion for a prior year only the current one.
To be clear, they can do a 2020 Backdoor Roth until April 15th 2021.
No, they can do a 2020 tira contribution until then but not a conversion or a backdoor roth for 2020.
mhalley
Posts: 8657
Joined: Tue Nov 20, 2007 6:02 am

Re: backdoor roth conversion

Post by mhalley »

To be clear, money that is in transfer on dec 31 is considered to be in the account it is leaving. Otherwise people would do things like initiate a transfer on dec 30 to avoid rmds etc.
little_star
Posts: 73
Joined: Tue Jun 16, 2020 5:08 pm

Re: backdoor roth conversion

Post by little_star »

There are some confusing statements on this thread.

It is possible to make a 2020 IRA contribution until April 15, 2021. If this is a non-deductible contribution to a traditional IRA, it needs to be reported on your 2020 IRS Form 8606.

Separately, you may make a conversion from a tIRA to R-IRA at any time. The conversion needs to be reported on IRS Form 8606 for the year in which the conversion takes place. To avoid the pro-rata rule, it is good to have zero tIRA balance on Dec 31 of the year in which the conversion takes place.

Thus, if you plan to complete the back door Roth process for 2020, you will need to fill out two Form 8606s, one for the contribution (2020) and one for the conversion (2021, or whenever you do the conversion; sooner is better).
Silk McCue
Posts: 4867
Joined: Thu Feb 25, 2016 7:11 pm

Re: backdoor roth conversion

Post by Silk McCue »

placeholder wrote: Tue Jan 12, 2021 9:22 pm
Silk McCue wrote: Tue Jan 12, 2021 9:20 pm
placeholder wrote: Tue Jan 12, 2021 9:11 pm You can't do a conversion for a prior year only the current one.
To be clear, they can do a 2020 Backdoor Roth until April 15th 2021.
No, they can do a 2020 tira contribution until then but not a conversion or a backdoor roth for 2020.
Semantics maybe? Fund a 2020 IRA before 4/5/2021. Convert those funds whenever they please including the next day and they have performed a Backdoor of their 2020 contribution that occurs in 2021. The balance for any pro rata consideration will be based upon 12/31/2021 IRA Balance. They can also do a 2021 Backdoor Roth at the same time if they wanted.

Cheers
placeholder
Posts: 4226
Joined: Tue Aug 06, 2013 12:43 pm

Re: backdoor roth conversion

Post by placeholder »

Silk McCue wrote: Tue Jan 12, 2021 9:31 pm Semantics maybe? Fund a 2020 IRA before 4/5/2021. Convert those funds whenever they please including the next day and they have performed a Backdoor of their 2020 contribution that occurs in 2021. The balance for any pro rata consideration will be based upon 12/31/2021 IRA Balance. They can also do a 2021 Backdoor Roth at the same time if they wanted.
Semantics are important because correct information leads to correct understanding and so it's important to understand that there is no such thing as backdoor roth only that it's a process with two distinct steps.
Silk McCue
Posts: 4867
Joined: Thu Feb 25, 2016 7:11 pm

Re: backdoor roth conversion

Post by Silk McCue »

placeholder wrote: Wed Jan 13, 2021 1:26 am Semantics are important because correct information leads to correct understanding and so it's important to understand that there is no such thing as backdoor roth only that it's a process with two distinct steps.
The term Backdoor Roth is well known and accepted in the financial community and within Bogleheads. We have endless posts on this topic. We also have a Wiki page specifically titled Backdoor Roth.

https://www.bogleheads.org/wiki/Backdoor_Roth

Thanks to Little Star for the complete reply provided last evening.

Cheers
placeholder
Posts: 4226
Joined: Tue Aug 06, 2013 12:43 pm

Re: backdoor roth conversion

Post by placeholder »

Silk McCue wrote: Wed Jan 13, 2021 7:06 am The term Backdoor Roth is well known and accepted in the financial community and within Bogleheads. We have endless posts on this topic. We also have a Wiki page specifically titled Backdoor Roth.
And many understand it but others don't which is why it is important to not gloss over the details.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: backdoor roth conversion

Post by retiredjg »

PR_PR wrote: Tue Jan 12, 2021 8:18 pm So I want to know if I can contribute to a new tIRA account and convert it to Roth for tax year 2020 without running into any pro-rata issues?
Welcome to the forum. :happy

Semantics aside, here is what you can do at this point.

1. You can make a contribution for 2020 until April 15 and document that on your 2020 taxes.

2. You can do the conversion step whenever you want, but it will be documented on your 2021 taxes.

3. You can also make a contribution for 2021 anytime you want and convert it all at the same time.


Considering that the two steps are documented on two different year's tax forms, I would not call it a "backdoor Roth for 2020" myself.
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