[When should I do a backdoor Roth - this calendar year or next?]

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JanV
Posts: 2
Joined: Wed Jul 21, 2021 11:37 am

[When should I do a backdoor Roth - this calendar year or next?]

Post by JanV »

[Moved into a new thread from: Got a tIRA balance, but need to do a Back Door Roth --admin LadyGeek]

Hi, follow-up question to this in preparation for doing a backdoor Roth. I am someone with funds in a traditional IRA with Vanguard (an old 401k rollover) that have grown over the years. I am allowed to roll them over into my current employer’s 403b so want to clear out the tIRA so I can do a backdoor Roth.

I understand that if you hold tax-deferred IRA dollars on 12/31 of the calendar year in which you made the Roth conversion, you’ll be subject to taxes when making your conversion per the pro-rata rule. But does this mean that I should rollover the existing tIRA this calendar year and wait until next calendar year to do the backdoor Roth conversion? Or does it just mean that I need to ensure the backdoor contribution is cleared out by 12/31? Thanks!
Silk McCue
Posts: 5529
Joined: Thu Feb 25, 2016 7:11 pm

Re: [When should I do a backdoor Roth - this calendar year or next?]

Post by Silk McCue »

Bottom line is that in the year that you perform a Backdoor Roth you must have a zero balance in any and all forms of a tax deferred IRA on 12/31 at the end of that year to avoid the pro rata rule.

Perform the Backdoor Roth today and you have until 12/31/2021 to empty any and all forms of a tax deferred IRA to avoid the pro rata rule. If you don’t perform the Backdoor Roth this year but wait until 2022 then 12/31/2022 would be the date hat would matter.

This is the link to the Backdoor Roth:

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

Cheers
tashnewbie
Posts: 1654
Joined: Thu Apr 23, 2020 12:44 pm

Re: [When should I do a backdoor Roth - this calendar year or next?]

Post by tashnewbie »

If the IRA contribution is for 2021, then I would move the TIRA into your 401k before 12/15/21 (I'd give yourself some wiggle room before 12/31).

Then once you've confirmed the 401k has accepted the TIRA balance, you can do both steps of the backdoor process (1. n-d TIRA contribution and 2. Roth conversion). I would try to do both of these in the same calendar year (you have until 4/15/22 to make a non-deductible TIRA contribution for 2021 tax year).

It's easier to complete Form 8606, which you'll have to do if you're doing the backdoor Roth, if both steps of the backdoor are done in the same calendar year for the same tax year (e.g., contribution and conversion in 2021 for 2021 tax year).

So, you can do both steps of the backdoor in 2021 or 2022. Just ensure that the TIRA balance is in the 401k before you do the last step (Roth conversion).
retiredjg
Posts: 44825
Joined: Thu Jan 10, 2008 12:56 pm

Re: [When should I do a backdoor Roth - this calendar year or next?]

Post by retiredjg »

Welcome to the forum. :happy

It does not mean either of the things you asked. If you use the backdoor in 2021 (contribution + Roth conversion) your other IRA needs to be gone by 12/31/21.

It is suggested you do the rollover to 401k first just in case there is a last minute glitch on whether the 401k will accept it or accept it in time.
Topic Author
JanV
Posts: 2
Joined: Wed Jul 21, 2021 11:37 am

Re: [When should I do a backdoor Roth - this calendar year or next?]

Post by JanV »

Thank you, all! I've been waiting two weeks for my CPA to answer this question for me. :happy
retiredjg
Posts: 44825
Joined: Thu Jan 10, 2008 12:56 pm

Re: [When should I do a backdoor Roth - this calendar year or next?]

Post by retiredjg »

Many CPAs do not know the answer. Don't be surprised if your CPA has no idea what you are doing if you use the backdoor process. You may need to explain it.
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