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.

 

[johnson86-1]

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

Sir, this is a board to discuss international geopolitical issues. Get this **** off the board.

 

[civildawg88]

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.

This is correct. I should have just left it in the 401k but I thought I was being smart and trying to find more investment funds by rolling into an IRA. I had no idea about the pro rata rule and the guy at fidelity never alerted me about it

 

[Oregon Tiger]

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

Yes, this is correct. The plan has to allow it.

 

[Oregon Tiger]

This is correct. I should have just left it in the 401k but I thought I was being smart and trying to find more investment funds by rolling into an IRA. I had no idea about the pro rata rule and the guy at fidelity never alerted me about it

This is unfortunate. I have had mixed results with Fidelity reps when it comes to tax implications. Unfortunately, the pro rata rule may make your backdoor Roth IRA contributions not very attractive moving forward. Again, if you have the opportunity, check with your employer's 401K plan and see if you can roll funds into it from your roll-over IRA. Good luck.

 

[GloryDawg]

You must make too much money to contribute to a Roth. Your accountant is having you contribute to a Traditional, converting it to a Roth by paying the tax. You can move money from traditional to a Roth without it being a contribution. You can only contribute 7K to all your IRA's and Roth combine unless you are 50 or older. They just passed a law under the Secured Act 2.0 that will allow you to convert from either a Simple or SEPP to a Roth which is huge due to the larger number of contributions you can make to a SEPP and Simple.

That's about all my knowledge. I will the experts handle it.

Side note: Making too much money not to contribute to a Roth is a good thing and I am lucky to have both a Define Contribution Plan and Define Benefit Plan. Thats a brag.

 

[civildawg88]

This is unfortunate. I have had mixed results with Fidelity reps when it comes to tax implications. Unfortunately, the pro rata rule may make your backdoor Roth IRA contributions not very attractive moving forward. Again, if you have the opportunity, check with your employer's 401K plan and see if you can roll funds into it from your roll-over IRA. Good luck.

So I just called my current employers 401k and they will accept the IRA so it's been a hassle but looks like I'll be good to go. Thanks for everyone's help