OT- Any Tax Pros on the board that could answer an IRA question?

[civildawg88]

Won't take much of anyone's time, but I have a weird question about an old 401k I rolled over to an IRA in pretax dollars but I also contribute post tax dollars to a different IRA to back door into a Roth in another account. Seems like I will run into some tax implications based on the pro rata rule if I'm reading correct but was hoping since we suck at sports that someone in the field would be able to confirm my suspicions. Shoot me a PM please

 

[horshack.sixpack]

Won't take much of anyone's time, but I have a weird question about an old 401k I rolled over to an IRA in pretax dollars but I also contribute post tax dollars to a different IRA to back door into a Roth in another account. Seems like I will run into some tax implications based on the pro rata rule if I'm reading correct but was hoping since we suck at sports that someone in the field would be able to confirm my suspicions. Shoot me a PM please

Did you commingle taxed and untaxed funds into the same IRA?

 

[patdog]

It looks like you have 2 separate IRA accounts. A regular IRA that was rolled over from the 401k, and a Roth. Generally, distributions from the regular IRA will be taxable and distributions from the Roth won't be, as long as you wait until you're 59-1/2.

 

[MSUDC11-2.0]

I’m confused on your question. Are you talking about if you will be taxed on the rollover or once you start taking distributions?

 

[civildawg88]

No I have a rollover IRA that I just rolled over from an old 401k. I also have a traditional IRA that I contribute to but I back door the contribution into my Roth IRA account due to being over the income limits. So if I'm reading it correctly, the IRS treats the rollover and traditional IRA the same and they don't like that I contribute already taxed money into it even though I'm backdooring it into a Roth IRA.

 

[stateu1]

Won't take much of anyone's time, but I have a weird question about an old 401k I rolled over to an IRA in pretax dollars but I also contribute post tax dollars to a different IRA to back door into a Roth in another account. Seems like I will run into some tax implications based on the pro rata rule if I'm reading correct but was hoping since we suck at sports that someone in the field would be able to confirm my suspicions. Shoot me a PM please

Pat is right. The pro rata rule is tricky, but I believe it only comes into play if you have after tax TRADITIONAL (not Roth) IRA dollars in addition to the pre tax traditional IRA. Even if this was the case, and you ignore the pro rata rule, I doubt the IRS ever catches up with you.

 

[civildawg88]

Pat is right. The pro rata rule is tricky, but I believe it only comes into play if you have after tax TRADITIONAL (not Roth) IRA dollars in addition to the pre tax traditional IRA. Even if this was the case, and you ignore the pro rata rule, I doubt the IRS ever catches up with you.

So do they consider the rollover IRA and a traditional IRA the same? I contribute after tax dollars to the traditional but I have been backdooring the money from the traditional into a Roth

 

[stateu1]

So do they consider the rollover IRA and a traditional IRA the same? I contribute after tax dollars to the traditional but I have been backdooring the money from the traditional into a Roth

The fact that you are backdooring to ROTH gets you out of the pro rata requirements. If you were to leave the after tax in the traditional, the pro rata would come into effect.

 

[greenbean.sixpack]

 

[Oregon Tiger]

If I understand this correctly, you have a traditional IRA that you use to backdoor contributions to your Roth IRA, and you also recently got a roll-over IRA from your old 401K plan and that rollover IRA has pre-tax dollars in it. I believe you are correct that the pro-rata rule will apply here. The IRS looks at all of your pre-tax IRAs together for the purpose of backdoor Roth IRA contributions. If you are still employed, one thing you could do before the end of the year is to take your roll-over IRA and roll it into your current 401K plan. I think that would eliminate the roll-over IRA and the pro-rata issue with your backdoor IRA contribution.

 

[stateu1]

If I understand this correctly, you have a traditional IRA that you use to backdoor contributions to your Roth IRA, and you also recently got a roll-over IRA from your old 401K plan and that rollover IRA has pre-tax dollars in it. I believe you are correct that the pro-rata rule will apply here. The IRS looks at all of your pre-tax IRAs together for the purpose of backdoor Roth IRA contributions. If you are still employed, one thing you could do before the end of the year is to take your roll-over IRA and roll it into your current 401K plan. I think that would eliminate the roll-over IRA and the pro-rata issue with your backdoor IRA contribution.

Cannot roll an IRA into a 401k unless the 401k plan allows for such.

 

[Oregon Tiger]

Cannot roll an IRA into a 401k

As a general statement, this is incorrect. It depends on the employers plan. I have done this myself with my employers 401K plan at Fidelity for a similar reason as the original post. In my case though, I had a traditional IRA with after-tax contributions, so I only had to roll over part of the traditional IRA into the 401K plan, leaving behind only the after-tax contributions. Then, I did a transfer of those after-tax contributions to a Roth IRA for the backdoor contribution. This approach is called basis isolation and is often used to work around the pro-rata rule issue.